Court Ruling on Well Co-Ownership Could Cost BP, Anadarko Billions in Fines

By Margaret Cronin Fisk | June 5, 2014

BP Plc and Anadarko Petroleum Corp. could face billions of dollars in fines after an appeals court ruled they were automatically liable for pollution-law violations as co-owners of the well that blew out and started the 2010 Gulf of Mexico oil spill.

The U.S. Court of Appeals in New Orleans yesterday upheld a lower-court decision that allows the U.S. to seek a maximum fine from London-based BP of $18 billion if it’s found grossly negligent for its actions surrounding the spill. Anadarko, which owned a 25 percent interest in the well, is facing a maximum penalty of $4.6 billion.

U.S. District Judge Carl Barbier, who made the initial ruling, will determine the size of the fines, based on factors including the degree of fault and attempts to fix the damage. His decision on whether BP was grossly negligent under the U.S. Clean Water Act is pending. He has already ruled that Anadarko wasn’t and excluded from trial evidence against the company alleging fault for the incident.

The April 2010 Macondo well blowout and explosion killed 11 workers and caused the worst offshore oil spill in U.S. history. The accident spurred thousands of lawsuits against BP and its contractors Transocean Ltd., the owner of the drilling rig, and Halliburton Co., which provided cementing services for the project.

‘Both Owners’

The U.S. sued BP and Anadarko in December 2010, alleging violations of federal pollution law. Barbier ruled in February 2012 that the companies were liable for civil penalties under the law “because they are both owners of the offshore facility from which oil discharged.”

The Clean Water Act allows the government to seek fines of as much as $1,100 per barrel spilled on a finding of strict liability and up to $4,300 a barrel for gross negligence. Barbier’s ruling left both companies immediately vulnerable to the $1,100-a-barrel fines.

Both companies said in filings with the New Orleans appeals court that Barbier improperly decided the matter before trial. The appeals court yesterday upheld Barbier, saying there was “no genuine dispute as to the defendants’ liability for civil penalties” under the Clean Water Act.

“We’re pleased with the court’s decision, which affirms Judge Barbier’s ruling that BP and Anadarko are liable as owners of the Macondo well,” Wyn Hornbuckle, a spokesman for the U.S. Justice Department, said in an e-mail. “We hope the court’s decision will be one more step toward reaching a just conclusion for the American people.”

Reviewing Options

John Christiansen, a spokesman for The Woodlands, Texas- based Anadarko, said in an e-mail that the company is reviewing the ruling and its options.

Anadarko has said in regulatory filings that it doesn’t believe its exposure to Clean Water Act penalties will have a “material impact” on the company’s financial position or cash flow, given its “lack of direct operational involvement” and the “subjective criteria” used to determine such fines. The company “currently cannot estimate the amount of any such penalty,” Anadarko said in a May 5 filing.

Geoff Morrell, a BP spokesman, declined to comment on the decision.

Barbier held two separate trial phases last year, one on the issue of gross negligence and fault, the other on the size of the spill and whether it took longer to cap the well because BP misrepresented the oil flow rate.

The U.S. claims 4.2 million barrels of oil were dumped into the Gulf of Mexico. BP estimates the flow at 2.45 million barrels.

Barbier will determine the size of the spill, which will be used to multiply the fines he sets. The penalty phase is scheduled for January.

The appeal is In re Deepwater Horizon, 12-30883, U.S. Court of Appeals for the Fifth Circuit (New Orleans). The lower court 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 (New Orleans).

–With assistance from Laurel Calkins in Houston.

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