BP turns to environmental impact, financial state in oil spill penalty trial

NEW ORLEANS — BP will continue to build its case for lower environmental fines Tuesday in the long-running legal fight over how much it should pay for fouling the Gulf of Mexico in 2010.

The London oil firm’s attorneys will likely focus on the spill’s environmental impacts, and how BP mitigated the damage, among other elements of the case.

Witnesses including Richard Morrison, BP’s regional president for the Gulf of Mexico, and Damian Shea, an environmental expert at North Carolina State University, are expected to take the stand in a New Orleans courtroom as prosecutors aim to convince a federal judge BP should pay $13.7 billion for the Deepwater Horizon oil spill.

Check back here for updates from the courthouse today.

3:30 p.m. CST — The effort to mitigate the oil spill on the shores of Louisiana and surrounding states began before the Macondo crude reached the beaches and marshes, an advantage one of BP’s expert witness called “a luxury” because normal oil response operations take place well after oil has leaked.

Elliott Taylor, principle at Seattle-based Polaris Applied Sciences, who was called to respond to the Deepwater Horizon oil spill five years ago, said he has concluded the Coast Guard-led Unified Command effort to assess and clean up oil along the shorelines were comprehensive, thorough, and effective. The response also accelerated the region’s recovery after the spill, he said, as the affected shorelines “have shown substantial recovery over time.”

And as the Coast Guard has found, Taylor said, the offshore efforts to burn, capture, chemically disperse and skim the oil “all extremely important in reducing the amount of oil that was available to reach the shoreline.”

2:04 p.m. CST — In cross-examination, Shea acknowledged the EPA hasn’t relied on studies on how toxicity have affected several fish species including Mahi-mahi and tuna.

He said the EPA can’t test every species and all of their life stages, but uses a benchmark to measure whether toxicity levels are generally harmful or not to those species.

As a scientist, I can’t say for sure ( whether the fish were harmed) without the data,” Shea said. 

Related: Government witness says oil spill harmed the Gulf ecosystems

1:46 p.m. CST — Shea argued that reports by two government witnesses — who testified last week — relied on a paper that used flawed methods of measuring toxicity.

Researchers, he said, used a non-standard blender to turn water samples into “a milk shake of the oil for a minute or so,” a way of artificially increasing the toxicity of a water sample. Samples could show 10 to 50 times higher toxicity levels, he said.

“Basically, the Gulf of Mexico is not a blender,” Shea said. The witness said analysis by government experts also used unreliable toxicology data to conclude there could have been effects to the swimming speed of Gulf fish.

Shea concluded his testimony saying a massive amount of data collected ater the spill show there was “no harmful exposure from oil-related chemicals or dispersants in nearly all of the area investigated.”

He said the few areas where there was potentially harmful exposure to chemicals were limited mostly to a region near the Macondo wellhead in the summer of 2010. 

1:30 p.m. CST — Millions of years of natural oil seeps in the Gulf of Mexico have forced microscopic bacteria to evolve ways to use oil molecules as a source of food. The process, called biodegredation, is one of three big reasons much of the oil that gushed from the Macondo well was neutralized relatively quickly, Shea said.

These bacteria also eat the toxic chemicals in oil. That, along with natural weathering and dilution, are nature’s means of removing oil from the environment, Shea said.

11:38 a.m. CST — Shea told the court of the 17,880 water samples collected after the spill, about 349 of them were potentially harmful because of toxicity levels that exceeded EPA benchmarks. That means 1.9 percent of the samples were considered potentially harmful.

The witness said rapid dilution in the Gulf of Mexico, biodegredation and natural weathering contributed to the water samples’ low toxicity levels. Shea said he disagreed with criticism from U.S. government experts that had said he had looked at too broad an area of water samples, diluting his analysis.

Shea said he looked at water samples where oil was known to have traveled and excluded all of the data outside of those regions. Regions where toxicity levels exceeded EPA benchmarks “were few and far between,” he said, limited mostly to areas around the wellhead in 2010. On the surface of the ocean, 97.4 percent of the water samples were deemed safe for aquatic life. 

After August 3, 2010, researchers found none of the water samples with high toxicity levels had Macondo oil, Shea noted. And as for chemical dispersants used to break up the oil, less than 1 percent of the water samples had toxicity levels over EPA benchmarks, he said.

11:15 a.m. CST — BP’s second witness, Damian Shea, an environmental expert at North Carolina State University, told the court his analysis of toxic chemicals data in comparison to Environmental Protection Agency benchmarks shows limited harm to the Gulf ecosystem after the oil spill.

Shea said he examined water and sediment data and the EPA’s toxicity thresholds to determine the potential harm that could have come from the Deepwater Horizon disaster, and he said it wasn’t surprising that the spill had limited effects in the region.

“Knowing the type of oil that was spilled it had a lower content of (polycyclic aromatic hydrocarbons) and it was an oil spill from the bottom of the ocean — there were a substantial number of processes that weathered the oil — it’s not surprising that we didn’t see a lot of potential harm in these analyses,” Shea said. 

About 17,800 water samples were collected during the oil spill response, and more than 8,000 sediment samples were taken, as well — the largest data set Shea has encountered in his career, he said.

10:04 a.m. CST — Morrison told Barbier that BP’s U.S. oil-production unit has had to incur billions of dollars in debt to pay for oil spill costs, including drawing from a $5 billion line of credit in 2010, an equity injection from BP America Production Co. of $13.9 billion in 2012 an a $3.1 billion loan last January.

The unit has $3 billion to $4 billion remaining available from a line of credit, the witness said. BPXP’s balance sheet, which encompasses 89 percent of BP’s assets in the Gulf of Mexico, showed it had $305 million in net cash flow in the third quarter.

In that period, BPXP collected $2.54 billion in net cash from operations and took in $282 million in proceeds from selling Gulf leases. It spent $2.52 billion. When a BP attorney asked Morrison whether he agreed with the government that BP could drop its capital expenditures to pay spill fines, he said deep-water operations “it’s a very capital intensive business.”

“If you pull back on capital too quick, you’ll see operating cash drop pretty quick,” Morrison said. “The strategy or the plan we have right now is to build up the projects we have. It’s about a 100 percent reinvestment rate.”

9:28 a.m. CST — U.S. prosecutors cut Morrison off before he told the court how much BPXP planned to spend in capital expenditures this year in light of falling oil prices. After some deliberation, Barbier limited a BP attorney’s questions to what BP has already spent, skipping over questions about future projections.

The witness said BPXP has spent $8.8 billion in operational expenses since 2009, including employment compensation of $2.06 billion over that time.

The firm’s Gulf oil, natural gas and natural gas liquids production has taken a massive hit since the oil spill, sinking from 431 million barrels of oil equivalent down to a bottom of 190,000 barrels in 2013, according to data displayed at the trial. The natural decline rates of wells contributed much to its production slowdown, but the firm also drilled few wells in 2011 and 2012, Morrison said.

Now, the company holds more than 600 leases and operates 10 deep-water drilling rigs in the Gulf. Its production rose to 221,000 barrels last year. BP has incurred $42 billion in liabilities and has spent $33.7 billion on legal costs, settlement costs and cleanup efforts so far.

“These are big numbers,” Morrison said. “I’m reminded that back in 1999, a company called BP paid $14 billion for” Amoco Corp.

9:12 a.m. CST — Last week, prosecutors raised the possibility that BPXP — the BP unit legally tied to the Macondo oil spill — has no employees at all.

Morrison says the subsidiary has 2,300 employees that work in its Gulf operations. BPXP gets those employees from a firm higher in BP’s corporate chain, BP America Production Co., but Morrison told Barbier BPXP is the one that pays them.

Turning to the BP unit’s economic role in the Gulf, Morrison said spends around $5 billion in capital and operating expenditures a year. Since 2009, he said, BP has spent $13.2 billion in capital investments — new facilities, drilling, and project expansions.

8:52 a.m. CST — Moving on, Morrison told Barbier he and other BP executives met with other industry players and stakeholders around the world sharing lessons the company learned from the oil spill, including in drilling and preventing spills, responding to such disasters and crisis management.

“This industry gets better when we share,” Morrison said, adding he had participated in more than 150 meetings around the world to discuss the advancements BP made in responding to oil spills. “Word travels at a certain pace in this world, and this was a chance to accelerate those lessons.”  

For example, the witness said, BP leaders had to manage a large number of facilities at one time, not only on the surface of the ocean but also at the seabed. BP developed “really good tools” that allowed vessel captains to ROV operators run smoothly and identify “plan B” if something went wrong.

The company was “story boarding what these vessels and ROVs are going to do, so that it worked,” he said. “It was planning on steroids.”

8:37 a.m. CST — Morrison began his testimony describing the structure and expansion of the Coast Guard-led Unified Command. He told Barbier the Coast Guard — the federal on-scene coordinator — led the response effort with BP and state agencies also taking leading roles.

The witness said his marching orders were to reach into the company with the skills and capabilities. He said BP didn’t place any limitations on resources related to the spill.

“Go global,” he said. “Bring them in from outside the U.S.”

Barbier interrupted: “A lot of this I’ve heard already,” he said.

8:11 a.m. CST — BP has called up Richard Morrison, its regional president for the Gulf of Mexico, as its first fact witness of the day. at the time of the spill, he was vice president of operations for that region, but wasn’t overseeing the Macondo well operations. He did, however, assist in the response to the spill.

On the stand today, Morrison will discuss the British oil giant’s spill response efforts, as well as technological advancements the company contributed to oil spill response measures. He will also testify about BP’s U.S. oil unit, BP Exploration & Production (BPXP), specifically about its role in the Gulf of Mexico and its current financial position.

Morrison’s testimony is one U.S. District Judge Carl Barbier may rely on when taking a factual look at the oil spill response and the state of BPXP’s finances.

Last week, the judge had interrupted BP attorney Mike Brock to ask if BPXP can’t pay high spill fines at the moment, would it be possible to set out multi-year penalties? Brock said he didn’t know but U.S. prosecutor Steven O’Rourke said he had heard of one such case under the Clean Water Act.