BP plc and Anadarko Petroleum Corp. are liable for civil penalties under the Clean Water Act (CWA) for their roles in the Macondo well blowout in the deepwater Gulf of Mexico, a federal judge ruled last week. However, Anadarko won a ruling excluding evidence about its knowledge of the Macondo operations.

U.S. District Judge Carl Barbier, who will oversee the multi-district litigation (MDL) 2179 proceeding beginning on Monday (Feb. 27) in New Orleans, also ruled that Transocean Ltd., which owned the Deepwater Horizon rig, may be liable for civil penalties under the CWA but he was unsure whether Transocean met the definition of the term “operator.” BP was the operator and majority owner (65%) of the Macondo well; Anadarko was a 25% owner. The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana

BP and Anadarko also were ruled to be responsible parties under the Oil Pollution Act for oil that flowed from beneath the surface of the water. Transocean was not found to be a responsible party.

Barbier rejected Anadarko’s argument that oil discharged from Transocean’s rig, not the Macondo well. He wrote that the “uncontrolled movement of oil began in the well.” The rig’s riser and blowout preventer “were merely passive conduits through which oil flowed.”

The Department of Justice argued in court documents that BP, Anadarko and Transocean each are liable for per-barrel civil penalties for oil discharged from the well after it exploded in April 2010.

Earlier this month Mitsui Offshore Exploration of Japan, which held a 10% stake in Macondo, agreed to pay $70 million in civil penalties under the CWA and $20 million for environmental restoration along the Gulf Coast. The civil penalty to be paid by the Mitsui Ltd. subsidiary is the largest ever recovered under the CWA, but assuming Mitsui’s 10% ownership, the penalty equaled a fine of about $175/bbl. The maximum penalty that could have been imposed under federal guidelines is $4,300/bbl.

The Mitsui settlement was called a “landmark” settlement and “an important step — but only a first step toward achieving accountability and protecting the future of the Gulf ecosystem,” said U.S. Attorney General Eric Holder. “The Department of Justice has not wavered in its commitment to hold all responsible parties fully accountable for what stands as the largest oil spill in U.S. history.”

An estimated four million bbl of oil spilled into the deepwater after the well exploded, which destroyed the Deepwater Horizon rig and killed 11 men. Assuming Mitsui’s 10% ownership in Macondo, the federal penalty equaled a fine of about $175/bbl. The maximum penalty that could have be imposed under federal guidelines for gross negligence is $4,300/bbl.

Mitsui said in a court filing it “lacked any authority to control the activities associated with the Deepwater Horizon mobile offshore drilling unit and had no involvement in the events leading up to the…incident.” It also denied having any liability from the incident. Last May Mitsui agreed to pay BP $1.1 billion to cover its share of the cost to compensate businesses and individuals impacted by the spill (see NGI, May 23, 2011). However, the agreement did not cover federal penalties or punitive damages.

The latest ruling, and the amount that Mitsui was fined, could compel Anadarko to settle Clean Water Act claims with the government, said Tudor, Pickering, Holt & Co.’s Robert Kessler.

“If I were Anadarko, I would be happy to settle on the $180/bbl precedent,” said Kessler. Using Mitsui’s settlement agreement, and Anadarko’s ownership in Macondo (25%), he said the U.S. producer might face a comparable fine of about $225 million. “If I am an Anadarko attorney, there is no real distinction between myself and Mitsui, which also had a nonoperating interest in the well. Anadarko already agreed to settle with BP [on liability claims] at $4 billion, so $225 million is a relatively small item to remove what has the potential to be very large fines. The Mitsui precedent for Anadarko is very reasonable.”

Anadarko won a court ruling Friday. Barbier ruled that Anadarko’s “knowledge of or access to information about Macondo well design and/or operations is irrelevant to any issue in the Phase I trial.” The ruling prevents evidence from being shown in the first trial that would determine the legal responsibility for the well explosion that destroyed the rig and killed 11 men.

BP also is said to be working on a settlement ahead of the first MDL proceeding. CEO Bob Dudley earlier this month said the company was “prepared to settle if we can do so on fair and reasonable terms. But equally, if this is not possible, we are preparing vigorously for trial” (see NGI, Feb. 13).

On Friday Moody’s Investors Service said BP’s ratings likely could withstand cumulative costs related to Macondo of up to $40 billion net. The MDL 2179 proceedings are expected to be “instrumental” in determining the magnitude of the total costs BP ultimately would have to bear.

“Considerable uncertainty remains regarding potential additional calls on BP’s cash flow ahead of the proceedings,” said Moody’s Senior Credit Officer Francois Lauras. “However, we believe that BP’s robust underlying cash flow, its prudent financial policies and the likely additional divestment proceeds should allow the company to absorb cumulative costs related to the Macondo well blowout of up to $40 billion whilst sustaining credit metrics commensurate with its A2/Prime-1 ratings.”

Should BP be found grossly negligent, CWA penalties “could be five times greater than the $3.5 billion currently set aside by the group to cover this cost, while punitive damages would be more likely to be awarded to plaintiffs in the course of the civil litigation,” noted Lauras. “Also, the group may have to pay hefty fines as a result of the ongoing criminal inquiry” by the Justice Department.

To date, the impact on BP’s financial profile from the oil spill tragedy “has been relatively contained, as the costs from the accident have been fully offset by proceeds raised from the sale of noncore assets and a significant cut in shareholders’ remuneration,” said Lauras. “Official investigations point to multiple factors causing the Macondo well blowout and shared responsibilities between the parties including BP, its partners and its contractors.

“However, as the designated operator in charge of the project, BP is regarded as having taken a central role in the accident. The MDL 2179 limitation and liability trial should help determine who was to blame for the Macondo accident, decide whether BP and any defendant acted with gross negligence, and apportion liabilities between the various parties involved. However, Moody’s notes that this is likely to be a protracted process, as final rulings after appeals may take years to resolve.”

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