After reviewing BP’s (NYSE:BP) Deepwater Horizon disaster, the Environmental Protection Agency announced on Wednesday that it had temporarily suspended the oil producer from new contracts with the federal government.
But this comes as no surprise to the company; since BP plead guilty to criminal charges brought earlier this month by U.S. government in response its 2010 oil spill, the company knew that a federal contracting ban was a possibility.
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Why did the EPA ban BP?
“EPA is taking this action due to BP’s lack of business integrity as demonstrated by the company’s conduct with regard to the Deepwater Horizon blowout, explosion, oil spill, and response, as reflected by the filing of a criminal information,” the agency said in a statement. “Suspensions are a standard practice when a responsibility question is raised by action in a criminal case.”
BP’s suspension will stay in effect until “the company can provide sufficient evidence to EPA demonstrating that it meets Federal business standards.”
CHEAT SHEET Analysis: Is the Federal Ban a Negative Catalyst for BP’s Stock?
One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’ stock. As the Financial Times reported following BP’s record $4.5-billion settlement, the ban had the potential to be disastrous for the company’s business, and therefore its stock. Fortunately for BP, the EPA only barred BP from future contracts instead of cancelling current contracts, which were worth approximately $1.35 billion in 2011. Yet, according the publication, even the temporary suspension could make it difficult for BP to acquire new leases to drill on federal lands or waters, and since the United States accounts for more than 20 percent of its oil and gas production, the ban could significantly affect production.
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