Did BP Catch a Spill Litigation Break?

On November 9, 2010, a report authored by the White House Oil Spill Commission — which was tasked with uncovering the root causes of April 2010 oil spill — said that the involved parties had been rushed. “There was not a culture of safety on that rig,” stated the panel’s co-chair Bill Reilly. Rather there was a culture of complacency at BP (NYSE:BP), Transocean (NYSE:RIG), and Halliburton (NYSE:HAL), he added.

But that report was merely the first step in long journey aimed at assigning blame and determining whether any or all of these companies acted with gross negligence during the events that precipitated the 4.9-million-barrel oil spill. Much finger pointing has characterized the proceedings thus far; BP claimed during the first stage of a trial held in a U.S. District Court in New Orleans that Transocean failed to maintain the drilling rig and that Halliburton provided defective cementing services, while both companies placed the blame on BP.

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Already, BP has been weighed down with a heavy bill. The Justice Department extracted a $4-billion settlement to settle criminal charges last year and the hundreds of lawsuits brought by those affected by the disaster resulted in restitution payments totaling $8.5 billion. The company also faces fines over violations of the U.S. Clean Water Act that could run as high as $17 billion depending on the outcome of the ongoing trial. Plaintiffs in the case range from small business to the U.S. government.

District Judge Carl Barbier, who has been charged with deciding fault for the incident and whether BP or its contractors acted with gross negligence, could come to a decision as early as July…

The oil and gas producer has made efforts to have the court assign at least a sizeable amount of blame for the Deepwater Horizon disaster on its contractors. Legal experts informed Reuters that BP appeared to be successful in shifting some of the responsibility to Transocean and Halliburton, a move that could potentially lower its liability significantly. BP’s management “put their faith in the hands of the court,” Blaine LeCesne, a tort law professor at Loyola University in New Orleans who has followed the trial closely, told the publication. “It looks like that might have paid off.”

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If Barbier finds that BP was grossly negligent, the money the company saved by spreading the blame to its contractors would likely be offset by the higher per-barrel fines such a ruling would bring. A charge of gross negligence comes with penalties amounting $4,300 for each barrel of oil that seeped into the ocean, which that would bring the total fine close to $17.6 billion. But if BP is found to be “no more than negligent,” a $1,100-per-barrel fine will be used to calculate the company’s penalties.

BP’s final witness may have helped the company’s case. Andrew Mitchell, a 40-year veteran of the offshore oil industry and an International Safety Management Code consultant, described the response of Transocean’s rig captain to the crisis as “completely inadequate,” according to Reuters. This testimony exacerbated an admission made earlier by the company. Transocean acknowledged that its employees misinterpreted a crucial pressure test on the well and evidence that a dead battery in the low-preventor kept the device from closing the well hole…

LeCesne expects BP to shoulder approximately 70 percent of the blame, while Halliburton will likely bear a larger portion of the remaining blame as testimony indicated that its cement mixture failed to plug the hole in the well as it should have.

BP spokesman Geoff Morrell told Reuters that the evidence presented at the trial proved BP was not grossly negligent and the disaster was the result of “multiple causes, involving multiple parties.” However, LeCesne believes just the opposite. “It’s by no means a certainty, but I think it’s more likely than not there will be a finding of gross negligence,” he told the publication.

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While BP has been determined from the beginning of litigation to avoid decades in court — like Exxon Mobil (NYSE:XOM) experienced after the 1989 Valdez spill in Alaska — its days in the courtroom are far from over. A gross negligence finding by Barbier could expose the company to punitive damages claims and billions more could be added on in economic damage claims from Gulf Coast states — including Mississippi, Florida, Louisiana, and Alabama. Additionally, natural resource damages have yet to be filed. But still, LeCesne is not predicting a settlement. In his opinion, the companies will continue to fight in out in court.

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