HOUSTON — The legal clash over the 2010 Gulf of Mexico oil spill is entering a key chapter that could give BP an idea of just how large a hole the disaster will burn in its wallet.
It appears unlikely that BP and the U.S. government will settle the multibillion-dollar dispute before a federal judge hands down several rulings in a civil case that will determine how much BP owes in Clean Water Act penalties.
The case combines a tangle of litigation arising from the spill, and U.S. District Judge Carl Barbier of New Orleans has heard testimony in two phases of a trial in the case.
The British oil giant and the U.S. government filed post-trial briefs late last month reasserting arguments about the amount of oil that spilled into the Gulf of Mexico, the subject of the second of the two court proceedings last year.
And in recent months, BP’s shift to hardline tactics — including criticism of the judge and advertising attacking some damage claims— suggests the company isn’t inclined to budge.
“They seem more willing to litigate and less willing to agree to anything,” said Carl Tobias, a law professor at the University of Richmond who studies federal courts and has followed the legal fallout from the Gulf oil spill. “There’s a lot of money at stake, and maybe they’re just willing to roll the dice.”
Barbier’s rulings on how much oil spilled and other issues, including whether BP was grossly negligent and how to apportion fault among participants in the Macondo well project, will trigger penalty proceedings that could set the company’s environmental fines up to $18 billion. That’s $6 billion more than the company collected in profit in 2012.
Biggest producer then
BP was the world’s largest oil producer when its Macondo well blew out on April 20, 2010, killing 11 workers on the Deepwater Horizon drilling rig and erasing more than $100 billion of BP’s market value overnight. Millions of gallons of crude reached the Gulf of Mexico and its shores, devastating fishing, tourism and other businesses.
Four years later, a slimmed-down BP has tried to appease shareholders by shedding assets and fighting tough legal battles, but the company’s stock still hasn’t recovered to its level before the disaster.
Its oil production has fallen 17 percent over the years, and the U.S. Environmental Protection Agency has recommended barring BP from acquiring new government contracts and oil leases in the Gulf.
Making peace with authorities could soothe Wall Street angst and help restore its brand, but BP appears to harbor too many high-stakes disagreements with the federal government.
“Neither seems to be willing to compromise on any issue, and each is confident they can obtain a ruling in their favor,” said Blaine LeCesne, a Loyola University law professor who has followed the case.
Silence from judge
Barbier is expected to make his first rulings early this year on questions raised in the trial proceedings last year in New Orleans, but he has not scheduled any hearings.
The judge’s silence so far has puzzled some legal experts. Breaking up the civil case into multiple phases makes sense if Barbier hands down fragmented rulings in an effort to tempt BP into a settlement, said John Levy, an attorney at Montgomery McCracken in New Jersey.
“That helps the parties see which way things are going to turn out,” Levy said. “It seems like both sides are dug in.”
In court documents last month, the federal government maintained its argument that more than 4 million barrels flowed out of the Macondo well a mile below the surface of the ocean.
BP replied that the spill was 2.45 million barrels, and that the government relied on erroneous assumptions and ignored other data to come up with its estimate.
The government is clinging to a number it developed when its scientists “acquiesced to demands from political appointees to develop an estimate in just a few days,” BP spokesman Geoff Morrell said in a written statement.
Through “much more thorough and scientifically sound analyses,” BP’s experts found that 3.26 million barrels were released from the reservoir, Morrell said. BP and the government agree that 810,000 barrels of oil were collected before they entered the Gulf and will not be used in calculating fines.
Under the Clean Water Act, Barbier could set the fines at a maximum of $4,300 per barrel if he finds that BP was grossly negligent in its conduct leading up to the spill. The fines would be set at $1,100 per barrel or less if the finding is simple negligence.
The Clean Water Act defines simple negligence as failure to exercise reasonable care and gross negligence as substantial deviation from reasonable care. But there are few court precedents to help Barbier in ruling on an unprecedented array of circumstances, parties and claims.
“There’s not a lot of law out there; that’s why the whole community is so focused on this case,” Levy of Montgomery McCracken said. “Barbier is making law with every decision. It’s going to set precedents, no doubt about it.”
But even after Barbier hands down his decisions, the company could endure other oil spill costs for years. BP still faces potential state-level environmental fines and federal penalties stemming from the National Resource Damage Assessment, which could costs several billion dollars and take years to unravel, LeCesne of Loyola University said.
“I think they’re only halfway there in terms of liability: it’s going to be spread out over many years,” LeCesne said, pegging the company’s total oil spill costs from $60 billion to $80 billion.
Billions set aside
The company’s current market capitalization is $149 billion, and regulatory documents show BP has set aside $42.5 billion for spill related costs.
Almost two years ago, the company agreed to a class action settlement with Gulf Coast residents claiming economic damages from the spill, and has paid $3.8 billion so far in settlement payments, according to a court-appointed claims administrator.
But in recent months BP has challenged some of the claims administrator’s decisions and Barbier’s rulings upholding them, alleging that payments are going to people who suffered no damages. The issue is pending.
But even if BP wins that battle, it still will owe an undetermined amount under the settlement, and that liability is probably a relatively small part of what BP ultimately will pay, said Tobias of the University of Richmond said.
“It doesn’t tell us much about the bottom line,” Tobias said.
On June 5, 2014, the Chemical Safety Board releases a two-volume report shedding new light on the cause of the Gulf oil spill. Agency investigators say the blowout preventer failed when a long drill pipe running from the rig down into the ocean floor buckled under high pressure coming up from the oil reservoir. In addition, the agency found U.S. regulations governing offshore safety -- even new rules set after the 2010 oil spill -- do not address many key safety devices.
Jacquelyn Martin / Associated Press
On May 21, 2014, BP announces that it will take the courtroom fight over its multibillion-dollar oil spill settlement to the Supreme Court. The London-based oil company argued that it has paid potentially hundreds of millions of dollars to claimants who were not affected by the 2010 Gulf of Mexico oil spill, violating its interpretation of the $9.2 billion settlement it reached with plaintiffs’ attorneys in 2012.
[Photo: People walk on the steps of the U.S. Supreme Court in Washington.]
On May 20, 2014, a federal judge rules that some BP investors can form a class to sue the company over allegations it misled shareholders on how much oil spilled into the Gulf of Mexico in 2010. The ruling followed the investors’ second bid to gain class certification needed for a securities lawsuit over allegations BP executives played down the amount of oil spewing from its blown-out Macondo well in early days of the 87-day disaster.
Seth Perlman / Associated Press
On April 21, 2014, a federal court sets Jan. 20, 2015 as the first day of the penalty phase of BP’s civil trial over the 2010 Gulf of Mexico oil spill. The penalty phase, during which U.S. District Judge Carl Barbier will listen to testimony from BP and government attorneys over the British oil company’s liabilities in the spill, will end around Feb. 5 next year, the court said.
Dave Martin / AP
On April 17, 2014, the Coast Guard cries foul over BP’s claim that active cleanup efforts to remove oil along the Gulf Coast shorelines have ended, saying the process is “far from over.”
[Photo: Mickal Vogt of Covington, La., uses a stick to place tar balls in a jar that washed up on the shore in Orange Beach, Ala., Saturday, June 12, 2010. ]
Tech. Sgt. Adrian Cadiz / AP
On April 15, 2014 -- nearly four years after the Gulf oil spill -- BP declares an end to cleanup operations that cost the company $14 billion and once covered 778 miles of shoreline on the Gulf Coast. The Coast Guard had finished its last patrols of the three remaining miles of beach that had been soaked in oil after a blowout at BP’s Macondo well blew out.
[Photo: In May 2010, ships move an oil boom into place near Cat Island off the Gulf Coast of Mississippi as part of Deepwater Horizon oil spill response.]
In March 2014, BP reaches a deal with the U.S. Environmental Protection Agency to end its 16-month suspension on doing business with the government. The deal allowed BP to bid on new drilling rights in the Gulf of Mexico for the first time in nearly two years.
[Photo: BP repairs its Mad Dog rig in the Gulf of Mexico in 2012.]
Jonathan Bachman / Associated Press
Kurt Mix, center, arrives at the Hale Boggs Federal Building in New Orleans. The former BP drilling engineer was convicted Dec. 18, 2013 of one charge that he deleted text messages from his cellphone to obstruct a federal investigation of the company’s massive 2010 oil spill in the Gulf of Mexico.
Gerald Herbert / Associated Press
Former FBI Director Louis Freeh leaves Federal Court after meeting with U.S. District Judge Carl Barbier, who appointed Freeh to investigate alleged misconduct by a lawyer who helped run BP's multibillion-dollar settlement fund for the Gulf oil spill. Freeh recommended Friday, Sept. 6, 2013, that the Justice Department investigate whether several lawyers plotted to corrupt the settlement program designed to compensate victims of BP's 2010 Gulf oil spill.
Gerald Herbert / Associated Press
Steve Newman, president and CEO of Swiss-based Trancocean Ltd., leaves Federal Court after testifying in New Orleans, Tuesday, March 19, 2013. Transocean was the owner of the rig Deepwater Horizon, which was being operated under contract to BP when BP's Macondo well blew out on April 20, 2010, setting into motion events that led to the nation's worst offshore oil spill. The Deepwater Horizon sank two days after the blow out.
Gerald Herbert / Associated Press
Lamar McKay, former president of BP America and current chief executive of BP's Upstream unit, leaves Federal Court after testifying in New Orleans, Monday, Feb. 25, 2013. McKay, who was president of BP America at the time of the Deepwater Horizon disaster, became the first BP executive to testify at the federal trial intended to identify the causes of BP's Macondo well blowout and assign percentages of blame to the companies involved.
Contributed Photo / Contributed Photo
A report by the National Wildlife Federation finds that the 3-year-old BP spill is still having a serious negative effect on the ecology of the Gulf of Mexico and its wildlife populations. Pictured: Smoke billows over a controlled oil fire off the coast of Venice, La., on May 5, 2010.
Sean Gardner/Getty Images
An activist holds a sign during a protest in front of the Hale Boggs Federal Building on the first day of the civil trial over the 2010 Gulf of Mexico oil rig spill on February 25, 2013 in New Orleans, Louisiana. Eleven men were killed during the accident and over 4 million barrels of oil spilled into the Gulf of Mexico in 2010.
Sean Gardner/Getty Images
Activists holds signs during a protest in front of the Hale Boggs Federal Building on the first day of the civil trial against BP in the 2010 Gulf of Mexico oil spill on Monday, Feb. 25, 2013.
Robert Kaluza, a BP well site leader from the Deepwater Horizon oil rig explosion, talks with his attorneys Shaun Clarke, left, and David Gerger, right, as they enter Federal Court before he is arraigned on manslaughter charges in New Orleans on Wednesday, Nov. 28, 2012.
Robert Kaluza, a BP well site leader from the Deepwater Horizon oil rig explosion, enters Federal Court before he is arraigned on manslaughter charges in New Orleans on Wednesday, Nov. 28, 2012.
David J. Phillip/AP
BP Senior Vice President Kent Wells rubs his eyes while testifying during the Deepwater Horizon joint investigation hearings Aug. 26, 2010. The hearings were held by the U.S. Coast Guard and the Interior Department's Bureau of Ocean Management, Regulation and Enforcement in Houston .
Demonstrators hold up signs on Capitol Hill in Washington on Monday, May 17, 2010, as BP America Chairman and President Lamar McKay, right, waits his turn to testify before the Senate Homeland Security and Governmental Affairs Committee hearing to assess the nation's response to BP PLC's Deepwater Horizon oil spill.
AP Photo/Haraz N. Ghanbari
A Capitol Hill police officer arrests Diane Wilson on Capitol Hill in Washington on June 17, 2010. BP CEO Tony Hayward was testifying before the Energy and Environment subcommittee on Oversight and Investigations hearing on the role of BP in the Deepwater Horizon explosion and oil spill.
Smiley N. Pool / Houston Chronicle
A protester's sign lies outside a meeting where residents were able to get face-to-face time with BP and government officials at one of a series of open houses in New Orleans on June 23, 2010.
John Moore/Getty Images
The letters BP, inscribed in sand and oil by a Greenpeace activist, are shown on a beach at the mouth of the Mississippi River on May 17, 2010 near Venice, La.
James Nielsen / Houston Chronicle
Melanie Driscoll, director of Bird Conservation for the Louisiana Coastal Initiative, holds up oil residue on April 8, 2011. The Louisiana Department of Wildlife & Fisheries gave a press tour to show the effects of the Deepwater Horizon oil spill in Port Sulphur, La.
Smiley N. Pool / Houston Chronicle
A cleanup worker, wearing a protective coverall and carrying a small scoop, punctuates an otherwise typical holiday beach scene as patrols the beach looking for tar balls on Independence Day 2010.Tourist business along the Gulf Coast all reported feeling the sting of lost income from a noticeable dip in tourism the summer following the Deepwater Horizon spill.
A member of Louisiana Gov. Bobby Jindal's staff reaches into thick oil on the surface of the northern regions of Barataria Bay in Plaquemines Parish, La. on June 15, 2010.
Crude oil from the Deepwater Horizon oil spill washes ashore in Orange Beach, Ala. on June 12, 2010. Large amounts of the oil battered the Alabama coast, leaving deposits of the slick mess some 4 inches to 6 inches thick on some parts of the beach.
Win McNamee/Getty Images
A brown pelican stained with oil takes flight while a bird rescue team tries to capture it for cleaning on June 5, 2010 in Grand Isle, Louisiana.
Patches of oil from the Deepwater Horizon spill are seen underwater in the Gulf of Mexico, south of Venice, La., on Monday, June 7, 2010.
Smiley N. Pool / Houston Chronicle
A boat is surrounded by oil near the site of the Deepwater Horizon explosion and oil spill on Tuesday, June 15, 2010.
A shrimp boat is used to collect oil with booms in the waters of Chandeleur Sound, La.
People gather near crosses for the 11 workers who died in the Deepwater Horizon oil rig explosion, during a vigil to mark the first anniversary of the BP oil spill on a beach in Grand Isle, La.. The large cross in the center is for the Gulf of Mexico.
Oil floats in the waters of Chandeleur Sound, La. two weeks after the explosion of the Deepwater Horizon oil rig in the Gulf of Mexico.
Oil from the Deepwater Horizon spill floats on the water as the sky is reflected in sheen on Barataria Bay, off the coast of Louisiana on June, 7, 2010.
The Deepwater Horizon oil rig burns in the Gulf of Mexico on April 21, 2010, more than 50 miles southeast of Venice on Louisiana's tip.
U.S. Coast Guard
Fire boat response crews battle the blazing remnants of the off shore oil rig Deepwater Horizon on April 21, 2010. The blowout in the Gulf of Mexico killed 11 people and sent 4.9 million barrels of oil gushing from the sea floor into the Gulf.