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HOUSTON--BP Exploration and Production Inc. has agreed to pay $4.5 billion to settle federal charges stemming from the Deepwater Horizon explosion and oil spill in the Gulf of Mexico in what the Justice Department called the largest resolution of a criminal case in U.S. history (United States v. BP Exploration and Production, E.D. La., docket number unavailable, plea entered 11/15/12).
The settlement requires BP to pay a fine of $1.25 billion and make $2.7 billion in additional payments for environmental restoration projects and research. The company also must undertake a number of safety-related reforms, including hiring an independent auditor to conduct safety reviews and an ethics monitor to enforce the company's code of conduct.
BP also agreed to pay a civil penalty of $525 million to the Securities and Exchange Commission to resolve charges related to reports on the amount of oil flowing from the Gulf of Mexico spill that the company filed with the SEC in the weeks after the accident.
BP pleaded guilty to all charges in a 14-count information the Justice Department filed in the U.S. District Court for the Eastern District of Louisiana Nov. 15, Attorney General Eric Holder Jr. said during a news conference.
The charges include 11 counts of felony manslaughter relating to the loss of 11 workers on the drilling rig; one count of felony obstruction of Congress when the company lied and withheld documents related to the rate of oil leaking from the Macondo well; and violations of the federal Clean Water Act and Migratory Bird Treaty Act in connection with the Deepwater Horizon spill.
The settlement resolves only the criminal case against the company, and the government is still free to pursue a civil complaint. Various sources said civil penalties could reach $21 billion if the government can prove the company was grossly negligent.
A civil trial is scheduled for February 2013. Environmental advocates termed the criminal fine a “slap on the wrist” and called for vigorous pursuit of the civil case
The BP-operated Macondo well blew out of control in April 2010, spewing an estimated 4.9 million barrels of oil into the Gulf as the largest U.S. offshore oil spill.
Thirteen of the 14 criminal charges pertain to the accident itself and are based on the negligent misinterpretation of the negative pressure test conducted on board the Deepwater Horizon rig. BP said it acknowledged this misinterpretation more than two years ago when it released its internal investigation report.
“This marks both the single largest criminal fine--more than $1.25 billion--and the single largest total criminal resolution--$4 billion--in the history of the United States,” Holder said at a New Orleans news conference. “But our work is far from over.”
Holder said he wanted to be “absolutely clear” that the settlement does not end the government's criminal investigation into the oil spill. Prosecutors will continue to follow all credible leads and pursue any charges that are warranted, he said.
Under the settlement, BP agreed to take additional actions, enforceable by the court, to further enhance drilling safety in the Gulf of Mexico. This will include an independent third-party auditor who will conduct annual reviews to ensure compliance with terms of the settlement agreement.
The company also will appoint a process safety monitor for four years to review, evaluate, and make recommendations to improve process safety and risk management procedures related to deepwater drilling in the Gulf. An ethics monitor will review and recommend improvement of the oil company's code of conduct and its enforcement.
The company could still face debarment as a federal contractor--it has major contracts to supply fuel to the Defense Department--but BP said it has not received any indication the government will pursue that remedy (see related story).
BP consented to an injunction that will be filed with the court prohibiting the company from violating certain U.S. securities laws and regulations. The SEC's claims are based on oil flow estimates included in three reports BP provided to the agency during a one-week period within the first 14 days following the accident.
Both the DOJ and SEC settlements are subject to federal court approval.
BP Group Chief Executive Bob Dudley said in a statement that officials “deeply regret the tragic loss of life caused by the deepwater Horizon accident as well as the impact of the spill on the Gulf coast region.” From the outset, Dudley said, BP “stepped up by responding to the spill, paying legitimate claims, and funding restoration efforts in the gulf.”
In eliminating the possibility of any further federal criminal charges against the company based on the accident, BP said it has taken a “significant step forward” in removing legal uncertainty over the oil spill and could now focus more fully on defending itself against all remaining civil claims.
BP said the settlement agreement is consistent with the company's position in the ongoing civil litigation “that this was an accident resulting from multiple causes, involving multiple parties, as found by other official investigations.”
Separately, DOJ unsealed a 23-count indictment filed in the Eastern District of Louisiana charging BP's two highest-ranking supervisors onboard the Deepwater Horizon, Robert Kaluza and Donald J. Vidrine, with manslaughter and violation of the Clean Water Act.
The indictment charged the supervisors with negligence and gross negligence because they failed to take appropriate action to prevent the blowout, Assistant Attorney General Lanny A. Breuer said (see related story).
The grand jury also charged a former senior BP executive, David Rainey, with obstructing a congressional investigation and making false statements to law enforcement officials, Breuer said. Rainey served as a deputy incident commander and BP's second-highest ranking representative at the unified command during the spill response.
About $2.4 billion of the criminal recovery funds will be dedicated to environmental restoration, preservation, and conservation efforts throughout the Gulf Coast region, including barrier island creation and river diversion projects in Louisiana, DOJ said. Another $1 billion will go to the U.S. Coast Guard's Oil Spill Liability Trust Fund to be available for cleanup and compensation for those affected by oil spills in the Gulf and other areas of the United States.
Additionally, $350 million will be earmarked to the National Academy of Sciences over five years to aid in the development of modern oil spill prevention and response technologies, education, research, and training, DOJ said.
BP also agreed to a term of five years' probation.
Sierra Club Executive Director Michael Brune said the criminal settlement “lets BP off with a slap on the wrist” after causing the largest oil disaster in American history.
Brune said the oil spill was the result of BP's criminal negligence.
The Sierra Club is working to ensure the remaining civil Clean Water Act and Oil Pollution Act lawsuits will result in penalties “topping $60 billion, which better reflects the harm BP inflicted on the Gulf,” Brune added.
Tyson Slocum, director of Public Citizen's Energy Program, called the settlement “pathetic” and a “weak-tea” punishment that provides “zero deterrence to BP or other companies.”
Frances Beinecke, president of the Natural Resources Defense Council, called for “a sizable civil penalty to begin to address the damage that has been done to Gulf communities.” Beinecke served on the presidential commission created after the BP Deepwater Horizon oil spill that called upon Congress to pass stronger laws on offshore drilling.
Rep. Ed Markey (D-Mass.), the ranking member of the House Natural Resources Committee, said he was pleased with the size of the settlement. He said the civil penalty in the case could go as high as $21 billion.
“I'm very satisfied with the Justice Department action, and I'm also very happy that they are going to take this civil action all the way to court,” Markey said during a news conference on the settlement. “I would hope that in the end this number would be so large in combination that it would serve as a significant deterrent to any other oil company ever again engaging in this level of recklessness.”
In addition, Markey said a former BP executive lied during closed door testimony in the weeks following the disaster about the rate oil was flowing from the damaged well, as the committee and others were still trying to gauge the response that was needed to the environmental disaster.
“They were deliberately low-balling the number because their liability is directly tied to the number of barrels of oil that flow into the ocean,” said Markey, who at the time served as the chairman of the House Energy and Commerce Committee's Energy and Environment Subcommittee.
“If we had known from the beginning that it was not 5,000 barrels, but 50,000 barrels, or 60,000 barrels, that would have affected the amount of dispersants that were needed to break up the oil spill, it would have affected the number of booms and skimmers that were needed in order to collect the oil,” Markey said. “We would have understood a lot better the futility of the initial actions and substituted something much more dramatic.”
Furthermore, at a Nov. 15 energy forum, Jack Gerrard, chief executive officer of the American Petroleum Institute, said he thought it is important “to bring closure” to the BP oil spill and “move on to lessons learned.”
Sen. John Hoeven (R-N.D.) said the United States needs to “make sure we have good standards in place” following the spill. However, the standards should not be so stringent they stifle new investment in drilling operations, he said.
“The key is we do it in a way that empowers more investment in energy,” he said.
Sen. Joe Manchin (D-W. Va.) said: “The bottom line is you never want these things to happen. You should be preventing it.”
Sen. Mark Udall (D-Colo.) said a portion of the settlement funds should go to the Land and Water Conservation Fund. “Let's protect those coastlands. There's a lot of reasons we could turn this money into something positive,” Udall told the energy forum.
Sen. Bill Nelson (D-Fla.) said he is “happy that the Justice Department brought the hammer down on BP and continues to hold them accountable for the hurt they've caused the people, businesses and environment of the Gulf Coast.”
“Now that this is worked out, it's time to move on to the civil side of things and get Gulf Coast residents every cent they deserve,” Nelson said.
Nelson said the settlement does not cover civil damages the federal government also is pursuing against BP under the Clean Water Act. If the court finds the company was grossly negligent, the federal civil case could result in BP being held liable for as much as $21 billion, Nelson said.
The Interior Department has implemented major reforms, but Congress has been unable to overcome partisan differences and pass offshore drilling legislation since the oil spill occurred over two years ago.
Rep. Henry A. Waxman (D-Calif.) said BP will face a jury in a civil trial in 2013, “and I'm hopeful that the other companies who played a role in this disaster will also face appropriate penalties for their actions.”
DOJ's criminal settlement was announced one week after Judge Carl Barbier held a fairness hearing in the U.S. District Court for the Eastern District of Louisiana on the tentative $7.8 billion civil settlement BP reached with private economic and medical loss claimants.
After a one-day hearing with testimony from attorneys representing the plaintiff's steering committee and attorneys representing parties who objected to the settlement, Barbier took the matter under advisement.
Barbier had given the proposed settlement tentative approval May 2.
The BP plea agreement is available at http://www.justice.gov/iso/opa/resources/43320121115143613990027.pdf.
The government's criminal information in the case is available at http://www.justice.gov/iso/opa/resources/73920121115143627533671.pdf.
The indictment of Robert Kaluza is available at http://www.justice.gov/iso/opa/resources/2520121115143638743323.pdf.
The indictment of David Rainey is available at http://www.justice.gov/iso/opa/resources/27820121115143658328449.pdf.
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