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BP Rejected in Quest to Cap Macondo Spill Liability

BP plc's request to cap Macondo oil spill liabilities below the maximum sought by federal prosecutors was rejected Thursday by a Louisiana court.

U.S. District Judge Carl Barbier of the Eastern District of Louisiana, who is overseeing the multi-district litigation, has not determined the actual amount of civil penalties to be levied against BP under U.S. Clean Water Act (CWA) penalties. However, the judge sided with federal prosecutors, who have argued for a maximum penalty of $4,300/bbl, per U.S. Environmental Protection Agency (EPA) authority (see Daily GPI, Jan. 21).

BP had sought a cap of $3,000/bbl, the cap set by Congress in 1990. However, Congress also gave EPA authority to adjust penalties for inflation, Barbier noted. EPA's authority is within "the very first section" of the CWA, he wrote. At the time of the Macondo blowout, EPA's maximum civil penalty for oil spills was $4,300/bbl, while the U.S. Coast Guard's was set at $4,000/bbl.

Taking BP's side in the argument "would invalidate nearly every agency's attempt to inflate civil penalties that can be sought in federal court," Barbier ruled.

The judge in January ruled that the blown well released an estimated 4.0 million bbl total. After deducting 810,000 bbl estimated to have been collected during cleanup operations, he ruled that 3.19 million bbl was released. Penalties are to be determined based on the amount of oil released, minus the amount collected.

If BP were to be fined the maximum allowed under the CWA, it would face a $13.7 billion fine (see Daily GPI, Jan. 16).

Anadarko Petroleum Corp., which held a 25% interest in Macondo, faces fines of up to $1,100/bbl under the CWA, Barbier also ruled. Anadarko had joined BP in its motion.

Earlier this month the Texas Supreme Court ruled against BP, which was attempting to be compensated under Transocean Ltd.'s insurance policies. Transocean owned and operated the Deepwater Horizon drilling platform servicing Macondo, which was destroyed following the blowout, killing 11 men.

BP had filed claims with Transocean's carriers in 2010, seeking a total of $750 million from its underwriters. The high court blocked BP's access to all of the spill claims.

Transocean's insurance policy has to be read in context with its BP Macondo drilling contract because the two documents "are inextricably intertwined," the court said. As such, "BP is not entitled to coverage under the Transocean insurance policies for damages arising from subsea pollution because BP, not Transocean, assumed liability for such claims."

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