BP, Anadarko Ask Appeals Court to Reverse Oil Spill Decision

Anadarko Petroleum Corp. and BP Plc asked an appeals court to throw out a judge’s finding that both companies were liable under the U.S. Clean Water Act for the 2010 Gulf of Mexico oil spill.

U.S. District Judge Carl Barbier found BP and Anadarko, partners in the doomed Macondo project, are automatically responsible under the law for polluting the gulf’s waters because they owned the well. The 2012 ruling allowed the federal government to seek fines of as much as $1,100 per barrel of oil spilled — multiplied by as much as 4.2 million — without having to prove liability at trial.

Both companies contend in filings with the U.S. Appeals Court in New Orleans that Barbier improperly decided the matter before trial. Anadarko also says the government is trying to shift the burden to the owners of the spilled oil rather than who’s responsible for the discharge.

“This isn’t a circumstance where the government gets to just make things up as it goes along,” Anadarko attorney David Salmons told the appellate panel at a hearing today. “The question is where the discharge is from, not where the oil is from.”

BP lawyer Jeff Clark argued that who owned the well doesn’t govern liability under the Clean Water Act. “Here, it is undisputed that the discharge came exclusively from the Deepwater Horizon” drilling rig, owned by Transocean Ltd., he told the judges.

‘Bottom Line’

“The bottom line in your argument is that none of this flowed from the well,” U.S. Circuit Court Judge Fortunato Benavides said at the hearing. BP and Anadarko’s lawyers agreed.

The U.S. Congress, in passing the Clean Water Act, was trying to regulate “movement of oil and the movement began in the well,” Justice Department lawyer Maggie Smith told the panel. A discharge under the law “doesn’t refer to a particular location, it refers to movement,” she said.

The oil spilled can come from multiple locations, she said. “Under the defendants own reading of the statute, there is no textual reason why the discharge couldn’t have gone through multiple sources,” Smith told the panel.

The judges didn’t make a decision today.

Neither company has much chance of prevailing before the appeals court, said law professor David Uhlmann.

‘Civil Penalties’

“The Clean Water Act requires the owners of the well to pay civil penalties if there is an unlawful discharge,” said Uhlmann, professor at the University of Michigan Law School in Ann Arbor and former head of the environmental crimes section of the U.S. Justice Department.

“The argument that they’re not liable borders on the frivolous,” he said in a phone interview. “There’s no good reason for BP and Anadarko to be litigating their liability for CWA penalties.”

The April 2010 Macondo well blowout and explosion killed 11 workers and caused the worst offshore oil spill in U.S. history. The accident spurred thousands of lawsuits against BP and its contractors Transocean and Halliburton Co., which provided cementing services for the project.

Spill victims also sued Anadarko, which owned 25 percent of the well. Anadarko agreed in 2011 to pay BP $4 billion to settle its share of oil spill claims. The settlement didn’t cover any fines from the U.S. government.

Pollution Laws

The U.S. sued BP and Anadarko in December 2010, alleging violations of federal pollution laws. The U.S. also sued Transocean and another minority partner, Mitsui & Co.’s MOEX Offshore 2007, which had a 10 percent share in the well. Transocean and MOEX both settled with the U.S.

Barbier ruled in February 2012 that BP and Anadarko are liable for civil penalties under the law “because they are both owners of the offshore facility from which oil discharged.”

For purposes of the Clean Water Act, “and with respect to the subsurface discharge, oil discharged from the Macondo well, an offshore facility,” Barbier said. “The subsurface discharge was not from the vessel, the Deepwater Horizon.”

The Clean Water Act allows the government to seek fines per barrel spilled of as much as $1,100 on a finding of strict liability to $4,300 for gross negligence. Barbier’s ruling left both companies immediately vulnerable to the $1,100-per-barrel fines.

Macondo Well

The companies appealed. BP contended in court papers in August that Barbier erred by concluding that the Macondo well was the single source of the oil spilled, and not the Deepwater Horizon rig, “the location from which all oil at issue indisputably was discharged.”

BP is liable for compensatory damages under the U.S. Oil Pollution Act and has paid billions of dollars to victims of the spill, the company’s lawyers said. “BP has not conceded liability” for the Clean Water Act claims, the lawyers said.

Anadarko asked the appeals court to toss out Barbier’s decision holding it responsible under the Clean Water Act.

A correct interpretation of the law “requires” the court to dismiss Anadarko, “a non-operating investor who bears no fault for the discharge and whose only connection to the spill is as a minority owner of the well,” the company’s lawyers said in an Aug. 23 filing.

“Anadarko had no ‘operational control’ over anything and was not ‘culpable,’” they said.

‘Loss of Control’

Well owners are responsible under the Clean Water Act and liable for civil penalties “when there is a loss of control and discharge from their well,” Justice Department attorneys said in court papers in July.

“There is no dispute that the millions of barrels of oil that fouled the Gulf in 2010 flowed out of the well as the result of a well blowout,” the lawyers wrote.

“BP continues to believe that the District Court’s summary judgment decision holding BP liable for civil penalties under the Clean Water Act is incorrect and should be reversed,” Geoff Morrell, BP’s spokesman, said in an e-mail today. “All of the oil at issue was discharged from the Deepwater Horizon, which was owned and operated by Transocean.”

Barbier held two separate trial phases this year, one on the issue of gross negligence and fault, the other on the size the spill and whether BP lengthened the time required to cap the well by misrepresenting the oil flow rate.

The Macondo well dumped 4.2 million barrels of oil into the Gulf of Mexico, lawyers for the U.S. told Barbier at the non- jury trial in October. BP estimates the flow at 2.45 million barrels. Both agree that their numbers would have been higher if 810,000 barrels hadn’t been captured by a siphoning device at the wellhead before it could spill into the Gulf.

Spill Size

Barbier will determine the size of the spill and, ultimately, what the fines will be, using multiple criteria, including the seriousness of the violation, the degree of the company’s culpability, other penalties imposed for the spill, the history of previous violations and efforts to minimize the effects of the discharge.

Anadarko has said in regulatory filings that it doesn’t believe its exposure to Clean Water Act penalties will have a “material impact” on the company’s financial position or cash flow, given its “lack of direct operational involvement” and the “subjective criteria” used to determine such fines.

The appeal is In re: Deepwater Horizon, 12-30883, U.S. Court of Appeals for the Fifth Circuit (New Orleans). The lower court 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 Edward Klump in Houston. Editors: Stephen Farr, Charles Carter)