Has BP Found a Life Raft?

Ahead of the company’s civil trial, scheduled to begin on February 25 in New Orleans, BP (NYSE:BP) may have found a life raft; the United States Justice Department has agreed that the oil BP recovered from the 2010 spill should be excluded from the penalties that will surely be levied after the impending trial.

BP stands to save as much as $3.5 billion if the reduced figure is used to calculate its fines.

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April 20, 2010 was the day on which Transocean’s (NYSE:RIG) Deepwater Horizon rig, under contract with BP, experienced a surge of gas that killed 11 workers and spewed 4.9 million barrels of oil into the ocean over a period of 87 days. However, BP has claimed that the total estimate made by the U.S. government was too high by 20 percent, and that it had recovered approximately 810,000 barrels of oil from the leaking well…
Together, the over-estimation and the recovered barrels would reduce the government’s claim, which was calculated on a per-barrel basis, to 3.1 million barrels, reported Reuters.

The company began arguing at the beginning of January that it cannot be penalized for the millions of gallons of oil that escaped after the explosion of the Deepwater Horizon drilling rig, but were captured before spilling into the ocean. In a court filing seen by The Associated Press, BP said that workers captured 34 million gallons of crude, and asked U.S. District Judge Carl Barbier to not include the collected oil when calculating the company’s Clean Water Act penalties. A team of scientists working for the government estimated that 200 million gallons oil, including the oil that was collected, escaped from the blown-out well.

The amount that the Department of Justice could fine BP under the Clean Water Act ranges from $1,100 to $4,300, if the company is found to have been grossly negligent. Using the maximum fine payable under the act, to calculate the worse possible scenario, BP could be facing penalties of as much as $21 billion. However, if the government does in fact use BP’s figures, which place the number of leaked barrels at 3.1 million, the maximum fine would only be about $13 billion.

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In a statement issued on Tuesday, BP expressed its confidence that the lower figure will be used to asses damages, stating that, “under the Clean Water Act, civil penalties are assessed only on oil that has actually entered the environment and potentially caused harm.”

As it stands, BP is preparing to head to court because it failed to reach a settlement over the allegations of negligence related to its operation of the Deepwater Horizon rig. The company is prepared to defend itself “vigorously” over the allegations.

“Gross negligence is a very high bar that BP believes cannot be met in this case,” Rupert Bondy, the company’s general counsel, said in a statement. “This was a tragic accident, resulting from multiple causes and involving multiple parties. We firmly believe we were not grossly negligent.” But the government has stated that BP is responsible for the 2010 spill because cost-cutting and time-saving measures contributed to the blowout.

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Last week, a U.S. district judge accepted a guilty plea by Transocean for its role in the disaster, along with a $400 million criminal fine.

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