BP “gross negligence” and lessons for Nigeria’s deepwater adventure

A US federal district court judge has ruled that the Macondo blowout, which killed 11 workers, and spilled millions of barrels into the US Gulf of Mexico, was the result of BP’s gross negligence and willful misconduct. BP’s contractors Transocean and Halliburton were also found negligent.

BP is now subject to stiff penalties under the Clean Water Act. The maximum penalty under the act is US$1100 per barrel for simple negligence and $4300 per barrel for gross negligence or willful misconduct.

The watershed ruling means the final cost to BP for the 2010 Gulf oil spill may hit $50 billion, wiping out years of profits and highlighting the risks of drilling as the industry pushes into more dangerous areas such as deeper waters and ice-bound Arctic fields.

BP said it strongly disagreed with the decision, and plans to appeal to the US Court of Appeals for the Fifth Circuit.

After the spill, the U.S. government barred BP from new work in the Gulf of Mexico and new contracts to supply fuel to the military. The ban was lifted in March. It is not clear if the court’s ruling could change that.

Contractors welcome ruling

Both Transocean and Halliburton said that the ruling relieves the companies of further financial risks even though they were both assigned a portion of liability.

Halliburton, in a statement, said it was pleased with the court’s decision. Halliburton on September 2, agreed to settle claims related to the 2010 oil spill for $1.1 billion. The company said that the settlement, which includes legal fees, will be paid into a trust in three installments over the next two years, until appeals are resolved.

Transocean said a U.S. court ruling eliminates its financial risk for the underwater portion of a 2010 oil spill in the Gulf of Mexico after the judge found BP Plc grossly negligent. In January 2013, Transocean agreed to pay $1.4 billion in criminal and civil fines. It also pleaded guilty to one misdemeanor violation of the Clean Water Act for negligent discharge of oil into the Gulf of Mexico and received five years’ probation in addition to the fines.

Transocean also said that the remaining financial risk was for the above-surface discharge of pollutants that occurred during the first two days of the spill.

Halliburton provided cementing services for BP at the well, including the placement of “centralizers” that help stabilize the well bore during cementing. The company had earlier blamed BP’s decision to use only six centralizers – to save “time and money” – for the blowout.

BP may cut back further investments

The prospect of up to $18 billion in new fines for the 2010 Gulf of Mexico oil spill could pressure BP to sell assets from the Americas to Asia and Russia, where its interests risk being dragged into a political standoff between Moscow and the West.

BP’s assets in Russia generate up to a quarter of its global production and the company has said it remains firmly committed to them despite the crisis in Ukraine, where separatists are being supported by Moscow. The West has imposed economic sanctions on Russia and Moscow has countered with its own restrictions.

BP has already divested around $50 billion of assets in recent years, slimming down to focus its growth on the Gulf of Mexico, Russia, Angola and the Caspian Sea.

Investors have demanded oil majors cut high costs and, after the ruling, BP may “look to extend the divestment program to cover an increase in fines.

Potential sales targets include BP’s 17 percent interest in the North West Shelf LNG project in Australia valued at $7.8 billion; its stakes in the Valhall and Skarv oilfields in Norway at a combined valuation of $4 billion and the Itaipu offshore project in Brazil for $1.3 billion.

BP has set aside $42 billion for cleanup, compensation and damages arising from the April 20, 2010 disaster in the Gulf of Mexico, including $3.5 billion for fines under the Clean Water Act.

Lessons for Nigeria’s deepwater adventure

The quest for deepwater drilling in Nigeria intensified after it became increasingly difficult to sustain production in the onshore assets as a result of production disruptions in the Niger Delta. The Gulf of Mexico oil spill is a wakeup call illustrating how problems have arisen as companies drill deeper and in more perilous conditions.

The complexity of deepwater drilling means that further accidents may be inevitable. Offshore drilling is high risk, and it leads to environmental disasters that can overshadow the financial benefits in the blink of an eye. The latest ruling against BP is setting a precedent for deepwater explorers in Nigeria. While the judge has yet to rule on how much oil was spilled, a key factor in determining additional fines, millions of barrels of crude from the well harmed wildlife and fouled hundreds of miles of beaches and coastal wetlands.

It clearly shows oil companies will be held accountable for mistakes that may be inevitable given the complexity of the work in deepwater.

FRANK UZUEGBUNAM