Feds Seek Up to $18B Spill Pollution Fine From BP

The government wants BP Plc to pay $16 billion to $18 billion in water-pollution fines for the worst offshore oil spill in U.S. history while seeking more than $1 billion from the co-owner of the blown-out well that caused the 2010 Gulf of Mexico disaster.

The federal government said BP deserves the maximum fine, which BP said would be the biggest Clean Water Act penalty ever and called it a “gross outlier” compared to other cases.

U.S. District Judge Carl Barbier in New Orleans ruled in September that London-based BP acted with gross negligence in drilling the well, a finding that quadruples the per-barrel penalty. As of Oct. 28, the company had set aside $3.51 billion for the penalties, saying that’s a reliable estimate of its liability if it wins an appeal of the judge’s ruling.

Barbier will conduct a non-jury trial next month to set pollution fines for BP and its well partner, Anadarko Petroleum Corp., after weighing multiple factors including the spill’s size and the level of responsibility each company bears for the disaster.

“APC’s culpability is minimal compared to that of BPXP,” the government said in today’s filing, referring to Anadarko and BP’s exploration unit.

Substantial Fine

While Anadarko doesn’t deserve the maximum fine, the government said, a substantial penalty is warranted because it provided virtually no assistance after the spill and a small fine wouldn’t be sufficient punishment for a multibillion-dollar oil company, the government said in the filing.

BP said it deserved a fine “at the lower end of the statutory range” because it already has incurred $42 billion in liabilities from the spill, including more than $14 billion spent to stop and clean up the damage. The company said a smaller fine is also appropriate because the spill caused less environmental and economic harm than had been expected.

“Despite initially dire predictions, more than four years of data show that the impact was far less than feared and that the Gulf has largely recovered, due in significant part to this massive cleanup and response effort,” Geoff Morrell, a BP spokesman, said in an e-mailed statement. “The U.S. seeks to dismiss BPXP’s extraordinary response efforts,” which would “disincentivize companies involved in future accidents from pursuing the best possible response without regard to cost.”

Ed Hirs, a professor of economics at the University of Houston, said the government’s proposed fine “is a penalty for bad behavior.”

‘Doesn’t Cripple’

“It hurts and it certainly is not immaterial but it doesn’t cripple the company,” said Hirs, who is also managing director of Hillhouse Resources, a Houston-based oil and gas company. “The company goes forward.”

The maximum $18 billion fine is less than the $23.5 billion in net income that BP booked last year, Hirs said. As for Anadarko, they are “guilty by association,” he said. “They didn’t have a say how the well was drilled.”

BP, the parent of the exploration unit, helped fund the cleanup and response effort, although it wasn’t legally obligated to pay for them, the company said in a court filing today. The parent company shouldn’t be expected to voluntarily shoulder additional billions in penalties, its lawyers said, particularly in light of the 45 percent fall in crude oil prices since mid-August.

‘Funding Shortfall’

BP said a high enough pollution penalty would “exhaust” the exploration unit’s “available funds in 2015 and result in a funding shortfall,” according to company lawyers. They blacked out the specific level of fine that would trigger that result.

“If ever there was a case that merits the statutory maximum, this is it,” government lawyers said in their court filing. BP might deserve some credit for what it’s paid so far, they said, but “no amount smaller than $16 billion suffices for this disastrous violation of law.”

Anadarko argued it should pay no water-pollution fines because it was a passive investor in the well.

“No Clean Water Act penalty is warranted against Anadarko because it bears no fault for the discharge, it has already paid more than $4 billion in damages, and there is no reasonable justification for any punishment,” Anadarko’s said in its filing.

John Christiansen, Anadarko’s spokesman, didn’t immediately respond to phone or e-mail messages seeking additional comment on the filings.

Anadarko paid BP $4 billion to resolve its portion of spill cleanup, response and damages costs, which it was obligated to share as co-owner of the well, under the Oil Pollution Act.

The U.S. said that settlement with BP should be disregarded because it represents a “resolution of cross-claims arising from the incident between business partners” and would leave APC paying no government pollution penalty.

The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

(With assistance from Mark Chediak in San Francisco and Margaret Cronin Fisk in Detroit.)