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 BP said it would appeal Thursday’s ruling by U.S. District Judge
Carl Barbier in New Orleans, Louisiana, who held a trial without a
jury last year to determine who was responsible for the April 20,
2010 rig explosion and spill that killed 11 workers and spewed oil
for nearly three months onto the shorelines of several states.
Barbier ruled that BP was mostly at fault and that two other
companies in the case, Transocean Ltd and Halliburton, were not as
much to blame. The disaster struck when a surge of methane gas known
to rig hands as a "kick" sparked an explosion aboard the Deepwater
Horizon rig as it was drilling the mile-deep Macondo 252 well off
Louisiana.
Barbier has yet to assign damages from the spill under the federal
Clean Water Act or rule on how many barrels spilled, but
David Uhlmann, a University of Michigan law professor and former
chief of the Justice Department's environmental crimes section, said
the ruling “dramatically increases” BP’s liability for civil
penalties under the act.
Previous calculations by Reuters have shown fines could run to $17.6
billion in the costliest scenario under a 'gross negligence'
finding. The amount is far more than the $4.5 billion maximum fine
that could have been levied under a simple 'negligence' ruling.
BP has set aside only $3.5 billion for fines under the Clean Water
Act, part of a much broader series of provisions for cleanup,
compensation and damages that exceed $42 billion.
"The Court concludes that the discharge of oil 'was the result of
gross negligence or wilful misconduct' by BP," Barbier said in his
written ruling. “BP’s conduct was reckless.”
In response, BP said it would challenge the ruling because it
believes the standard for proving "gross negligence" was not met.
"BP believes that an impartial view of the record does not support
the erroneous conclusion reached by the District Court."
If the gross negligence ruling stands, it could create a tough new
standard and raise liability risks for the deepwater drilling and
other high risk industries, legal and business experts said.
There will be "long-term repercussions," Gianna Bern, who teaches
international finance at the University of Notre Dame, said of the
energy sector. "Potential liability is now in the stratosphere and
that limits the number of players that can engage in this type of
activity."
Shares of BP in the United States closed down 5.9 percent at $44.89.
BP shares in London also closed down nearly 6 percent, the worst one
day slide in more than four years.
A separate criminal case was settled with the U.S. government in
late 2012. BP agreed to pay $4.5 billion in fines.
Even after the Clean Water Act fines are set, BP may face other
bills from a lengthy Natural Resources Damage Assessment, which
could require BP to carry out or fund environmental restoration work
in the Gulf, and other claims.
DIVIDEND SAFE FOR NOW
The case will go on for months or even years with Barbier set to
assign damages after the next phase of a civil trial over the
accident, scheduled for January 2015. The two earlier phases of the
trial looked at how to apportion blame and examined how much oil
spilled.
BP has been forced to shrink by selling assets to pay for the
cleanup. Those sales erased about a fifth of its earning power and
it may be pressured by investors to delay making new investments
until the lawsuit is resolved.
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In addition to the court case, Philip Adams, analyst at Gimme
Credit, said BP is vulnerable to growing tensions between the West
and Russia. London-based BP holds a 19.75 percent stake in Russian
energy giant Rosneft.
Still, the company had $27.5 billion in cash and equivalents on its
balance sheet at the end of the second quarter, and analysts think
it will keep paying dividends that yield about 5 percent.
Jason Gammel, an equity analyst at Jefferies in London wrote that
even with a maximum fine, BP has sufficient liquidity to meet its
obligations. "We would expect a lengthy appeals process first. We
thus do not believe there is risk to the current BP dividend."
PARTNERS PROTECTED
Under federal rules, a gross negligence verdict carries a potential
fine of $4,300 per barrel, far higher than the statutory limit on a
simple "negligence" of $1,100 per barrel.
BP says 3.26 million barrels leaked from the well and the U.S
government says 4.9 million barrels spilled. The fines will exclude
about 810,000 barrels collected during cleanup.
The judge apportioned 67 percent of the fault to BP, 30 percent to
Transocean, which owned the drillship, and 3 percent to Halliburton,
which did cement work on the Macondo well.
Transocean and Halliburton have settled some liabilities and the
judge said they were shielded by indemnity clauses with BP.
Texas-based Anadarko Petroleum Corp, which owned a quarter of the
well, might have to pay fines under the Clean Water Act, though it
has settled other claims with BP.
Gulf Coast states would receive a portion of any fines BP pays to
the government.
On Thursday, U.S. Attorney General Eric Holder said in a statement,
"We are confident this decision will serve as a strong deterrent to
anyone tempted to sacrifice safety and the environment in the
pursuit of profit."
The civil case is In re: Oil Spill by the Oil Rig "Deepwater
Horizon" in the Gulf of Mexico, on April 20, 2010, U.S. District
Court, Eastern District of Louisiana, No. 10-md-02179.
(Additional reporting by Sudip Kar-Gupta, Karolin Schaps and Karey
Van Hall; Writing by Terry Wade; Editing by Grant McCool)
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