Senior executives at BP (NYSE:BP) informed Bloomberg’s Paul Barrett that a significant portion of the company now effectively acts as law firm, handling the energy producer’s lengthy legal docket and ongoing regulatory hurdles that the 2010 oil spill caused. “BP used to be a company that produces oil,” he said, but “these days, it’s producing litigation in almost equal measure.”
The most recent addition to BP’s litigation agenda is the lawsuit the company filed Monday in the U.S. District Court in Houston against the Environmental Protection Agency. At the end of November, the EPA announced it had temporarily suspended the company from new contracts with the federal government because of “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.” The company’s existing contracts with the United States, worth an estimated $1.3 billion, were not affected.
BP’s Gulf of Mexico disaster was the worst offshore spill in U.S. history. It began on April 20, 2010, when an undersea well exploded 50 miles off the Louisiana coast, killing 11 workers and spewing millions of barrels of crude oil into the ocean. Marshes, fisheries, and beaches stretching from Louisiana to Florida were polluted, harming local tourism and fishing. However, the company said in court papers acquired by the energy business news outlet Fuel Fix that the agency’s original decision to suspend BP from federal contracts and its continued enforcement of that debarment is arbitrary, capricious and “an abuse of discretion.”
According to BP, the company’s ineligibility for new contracts has cost it billions of dollars in lost government contracts. In particular, the energy producer missed out on contracts with the Defense Logistics Agency, a combat support unit, that were worth up to $1.9 billion. Before the suspension, BP had been a major supplier of fuel to the U.S. military, and it continues to be one of the largest leaseholders in the Gulf of Mexico.
In March, the Department of the Interior agreed to allow BP to bid in a Gulf of Mexico lease sale, but warned that if it was the highest bidder and was still under suspension when the lease was awarded, its offer would be disqualified. With those conditions, the company declined to participate in the lease sale auction.
When the oil producer pled guilty in January to manslaughter, the obstruction of Congress, and several other criminal charges brought by the federal government after the oil spill, it was ordered to pay a $4 billion fine. That guilty plea also resulted in the suspension, which will be maintained until BP can negotiate an administrative agreement with the EPA. However, in the claim the company made Monday, BP said the suspension should have ended once the criminal case was closed. The plea deal was agreed upon in November, just before the EPA debarment was put in place.
At the heart of BP’s argument is the company’s belief that it has made satisfactory amends for the damage caused by the oil spill. On more than one occasion, BP has argued that the United States government has been unfair in punishing the oil producer for its mistakes that led to the oil spill. And on more than one occasion the company has taken its dispute public rather than work out a solution via private negotiations, like the advertisements BP placed in The Wall Street Journal, The New York Times, and Washington Post to contest the way oil spill compensation was calculated.
It is true that BP has acknowledged responsibility for the disaster and worked to repair the vast damage it caused, selling assets worth approximately $40 billion along the way, according to Reuters. It has paid more than $25 billion to clean up the coastline and settle damage claims; it attempted last year to negotiate with the federal government and gulf states to work out a $16 billion settlement deal; and it made a multibillion-dollar settlement that set up a fund to compensate oil spill victims.
But litigation continues. BP is in the midst of a civil suit, in which the Justice Department is seeking up to $17.5 billion in additional damages. Had last year’s $16 billion settlement deal not fallen apart, that suit would have been resolved. As company CEO Robert Dudley told Bloomberg last week, the company has tried to negotiate, but that route failed.
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