Steffy: Suspension sends powerful message to BP

Wednesday’s sale of federal offshore oil and gas leases in the Gulf of Mexico may offer a glimpse of what’s to come. BP wasn’t there.

While BP’s absence apparently was voluntary, the next time it may not be on the sidelines by choice. The day of the auction, the U.S. Environmental Protection Agency temporarily suspended the company from bidding on new federal contracts, which would include oil and gas leases.

The suspension came amid a week dominated by arraignments in BP’s criminal case related to the Deepwater Horizon. While BP’s settlement terms in that case – 14 guilty pleas, $4.5 billion in fines – are part of its punishment, the EPA’s decision sends a far stronger message.

Rarely, if ever, has the government come down so harshly on such a large company. Then again, rarely has a company so persistently defied federal orders to improve safety. BP’s agreement to guilty pleas last week caps a decade in which it had repeatedly fun afoul of safety and environmental regulations in its refining and pipeline operations.

“It’s fairly unusual for a company the size of BP to be suspended,” said Daniel Gordon, who was the administrator of federal procurement policy before joining the George Washington University Law School faculty in January. “A suspension means the government takes the matter of a corporation’s behavior very seriously.”

The decision could affect BP’s plans to expand drilling operations in the Gulf of Mexico and cost it billions in government business. That’s why, as I noted when the settlement was announced, the felonies in the case matter more than fines.

In announcing its decision, the EPA cited “BP’s lack of business integrity as demonstrated by the company’s conduct with regard to the Deep- water Horizon blowout, explosion, oil spill and response.”

The suspension pertains to London-based BP and all its affiliated companies and subsidiaries, which means BP can’t plead and dodge as it has in the past.

When it settled criminal charges in 2008 related to its Texas City refinery blast, for example, the guilty plea to a solitary felony count came from BP’s North American Products division. As a result, its culpability in the deaths of 15 workers and the injuries of 170 didn’t prevent other BP subsidiaries in the U.S. from entering into other government contracts.

BP clearly was caught flat-footed by the EPA’s announcement. While it acknowledged the possibility of a suspension when it announced its criminal settlement two weeks ago, it also said, “BP has not been advised of the intention of any federal agency to suspend or debar the company in connection with this plea agreement.”

Now, it’s trying a different spin setting, implying that a speedy settlement to the suspension is imminent. That may be wishful thinking.

A resolution could take three months to three years, by some experts’ estimates, and because the suspension is discretionary, simply complying with the terms of the criminal plea – which includes establishing outside monitors for safety and ethics – may not be enough. The EPA can impose more conditions.

In the meantime, the company could begin to feel the squeeze from a lack of federal business.

BP, for example, was the biggest supplier of fuel to the Pentagon in fiscal 2011, with contracts worth $1.4 billion, according to Mimi Schirmacher, a spokeswoman with the Defense Logistics Agency. In all, BP has 17 contracts, worth about $2.4 billion, that expire in the next two years, she said.

While it may have chosen to pass on Wednesday’s Gulf lease sale, it won’t be able to participate in the next one, set for March, if the suspension remains in place.

That could crimp BP’s plans to rebuild itself after the Deepwater Horizon disaster. The Gulf, where it’s the biggest leaseholder and one of the biggest producers of oil and natural gas, is a key part of its growth strategy.

BP probably has already had its lawyers meeting with the EPA to discuss a resolution, Gordon said, adding that he believes given BP’s size and the unusual nature of the suspension, it will be resolved quickly.

“It would be very, very surprising if this suspension is in place in six months,” he said.

The point of suspension, though, isn’t punishment. BP has had plenty of that. It’s spent tens of billions on the disaster, and it’s likely to spend tens of billions more. It’s sacrificed tens of billions in market value in the past 2½ years as well and it agreed to pay another $4 billion in criminal fines last week.

The suspension is designed to protect the public’s interest by getting BP to change its behavior, Gordon said. In other words, it gives BP something that the previous fines, charges and civil lawsuits apparently haven’t: a powerful incentive to change.

Loren Steffy, loren.steffy@chron.com, is the Chronicle’s business columnist. His commentary appears Sundays, Wednesdays and Fridays. Follow him online at blog.chron.com/lorensteffy, www.facebook.com/LorenSteffypage and twitter.com/lsteffy.