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UPDATE: BP Settles With DOJ in $4.5 Billion Record-Breaking Fine

Posted by Shirley Brady on November 15, 2012 10:07 AM

The Associated Press is reporting that "BP has agreed to pay the largest criminal penalty in U.S. history, totaling billions of dollars, for the April 2010 oil spill in the Gulf of Mexico" that killed 11 workers in 2010. Bloomberg also reports: "The company will plead guilty to obstruction of justice for lying to Congress. Two of the company’s employees face manslaughter charges over deaths in the explosion of the oil well, said the person, who requested anonymity to discuss the deal which has not been made public. The amount wasn’t disclosed." The BBC is putting the figure at between $3 billion and $5 billion, and hears that up to four BP staff may be arrested.

Update: The settlement for the DOJ's Deepwater Horizon oil spill fraud case levies $4.5 billion in penalties against the company, including $1.26 billion for 14 criminal charges, and eliminates any further criminal and Securities and Exchange Commission (but not civil) charges against the company. As part of the deal, BP "has agreed to plead guilty to 11 felony counts of Misconduct or Neglect of Ships Officers relating to the loss of 11 lives; one misdemeanor count under the Clean Water Act; one misdemeanor count under the Migratory Bird Treaty Act; and one felony count of obstruction of Congress." It's also agreeing to pay $525 million in civil penalties through 2015 to settle claims by the SEC over the company's reporting on the oil flow rate into the Gulf of Mexico in the days following the accident. The deal is still subject to US federal court approval.

The Justice Department press release confirms that BP's two highest-ranking supervisors are being charged with manslaughter while a former senior executive is being charged with obstruction of Congress:

In addition to the historic $4 billion in criminal fines and penalties, BP has agreed as part of its guilty plea to retain a process safety and risk management monitor and an independent auditor, who will oversee BP’s process safety, risk management and drilling equipment maintenance with respect to deepwater drilling in the Gulf of Mexico. BP is also required to retain an ethics monitor to improve BP’s code of conduct for the purpose of seeking to ensure BP’s future candor with the United States government.

"The explosion of the rig was a disaster that resulted from BP’s culture of privileging profit over prudence," said Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division. "We hope that BP's acknowledgment of its misconduct – through its agreement to plead guilty to 11 counts of felony manslaughter – brings some measure of justice to the family members of the people who died onboard the rig."

"The oil spill was catastrophic for the environment, but by hiding its severity BP also harmed another constituency – its own shareholders and the investing public who are entitled to transparency, accuracy and completeness of company information, particularly in times of crisis," said Robert Khuzami, Director of the U.S. Securities and Exchange Commission’s (SEC) Division of Enforcement. "Good corporate citizenship and responsible crisis management means that a company can’t hide critical information simply because it fears the backlash."

BP's global Facebook page announced the settlement by sharing a statement from BP America's Facebook page and linking to BP.com's Gulf restoration page:

The BP global Twitter feed (@BP_Press) was three words long ("Agreement over charges") with a link:

The BP.com global homepage was rearranged to announce the deal and promote, through other content, that it's trying to be a good guy through a variety of corporate citizenship efforts. A module headlined "BP in the United States" that features links to the "14,500+ charities" it supports in the US, "Alternative Energy in the US," jobs, energy issues and "Our support of Team USA" in the London 2012 Summer Olympic Games. Below the DOJ news Bob Dudley literally puts a face on the company, with a link to a speech in Abu Dhabi headlined "New times, new thinking." (Does the corporate citizenship messaging help or hinder? Post a comment below.)

"We specifically structured this resolution to ensure that more than half of the proceeds directly benefit the Gulf Coast region so that residents can continue to recover and rebuild," stated US Attorney General Eric Holder. Almost $2.5 billion is going to the National Fish & Wildlife Foundation alone, in addition to investments in new technologies and safety improvements:

Under the resolution with the Department of Justice (DOJ), a total of $2.394 billion will be paid to the National Fish & Wildlife Foundation (NFWF) over a period of five years. In addition, $350 million will be paid to the National Academy of Sciences (NAS) over a period of five years. Pursuant to the terms of the plea agreement, BP has also agreed to take additional actions, enforceable by the court, to further enhance the safety of drilling operations in the Gulf of Mexico. These requirements relate to BP’s risk management processes, such as third-party auditing and verification, training, and well control equipment and processes such as blowout preventers and cementing.

In addition, BP has agreed to several initiatives with academia and regulators to develop new technologies related to deepwater drilling safety. The resolution also provides for the appointment of two monitors, both with terms of four years. A process safety monitor will review, evaluate and provide recommendations for the improvement of BP’s process safety and risk management procedures concerning deepwater drilling in the Gulf of Mexico. An ethics monitor will review and provide recommendations for the improvement of BP’s Code of Conduct and its implementation and enforcement.

The company's press release on the plea deal quotes CEO Bob Dudley: “All of us at BP deeply regret the tragic loss of life caused by the Deepwater Horizon accident as well as the impact of the spill on the Gulf coast region. From the outset, we stepped up by responding to the spill, paying legitimate claims and funding restoration efforts in the Gulf. We apologize for our role in the accident, and as today’s resolution with the U.S. government further reflects, we have accepted responsibility for our actions.” Chairman Carl-Henric Svanberg added, "We believe this resolution is in the best interest of BP and its shareholders. It removes two significant legal risks and allows us to vigorously defend the company against the remaining civil claims."

The settlement removes a huge uncertainty that has been hanging over the company, although its penalty for US Clean Water Act violations could put BP on the hook for $21 billion more.

Before the deal was announced, the company released a statement this morning confirming that it was nearing a deal with the US Department of Justice:

BP confirms that it is in advanced discussions with the United States Department of Justice (DoJ) and the Securities & Exchange Commission (SEC) regarding proposed resolutions of all US federal government criminal and SEC claims against BP in connection with the Deepwater Horizon incident. No final agreements have yet been reached and any resolutions, if agreed, would be subject to federal court approvals in the United States. The proposed resolutions are not expected to cover federal civil claims, including Clean Water Act claims, federal and state Natural Resource Damages claims; private civil claims in MDL 2179 that were not covered by the PSC settlement, private securities claims pending in MDL 2185 or state economic loss claims.

The energy giant has been trying to move beyond the 2010 Deepwater Horizon disaster, promoting its efforts to restore the Gulf and (controversially) sponsoring the London 2012 Olympic Games, a move that appears to have paid off according to a US consumer poll by YouGov BrandIndex. And while it's been fighting to restore its reputation and has laid out a 10-point plan (point #1: "A relentless focus on safety and managing risk" while #5 is "More visibility and transparency to value") to turn around the company, it's business as usual on the drilling and exploration front as it continues to resolve key partnerships such as its troubled TNK relationship in Russia and looks to boost value for shareholders and partners.

Dudley (whose full title is Chief Executive Officer, Head of Disaster Management Unit, Executive Vice President and Executive Director) discussed the company's two-year progress since the Deepwater Horizon disaster on the company's Oct. 30th third quarter earnings call, while acknowledging that discussions with the DOJ were reaching a conclusion:

"We have made significant progress in repositioning BP for sustainable growth into the future through a significant change program addressing safety and reliability, the shape of our portfolio, and the renewal of the upstream. We remain on track to deliver the 10-point plan and expect to grow our operating cash flow by more than 50% by 2014 from 2011 levels, excluding TNK-BP and assuming an oil price of $100 a barrel. The vision for BP is for a focused oil and gas company that creates value by growing long-term, sustainable free cash flow through safe and reliable operations."

He added that the Gulf of Mexico remains a key part of that vision:

"The Gulf of Mexico remains one of our important sources of medium and long-term growth. The recent sale of the package of non-core assets demonstrated the value of our position which is now concentrated on our 4 operated hubs, our Paleogene appraisal program and our exploration acreage. We've only produced around 20% of the resources from our existing hubs, including our non-operated positions, leaving 80% still to be recovered. In total, we have remaining net resources of some 4 billion barrels of oil equivalent. Our approach is to extract this value. While it is taking time to get production back after the 2-year absence of drilling, we now have 7 rigs operating in the Gulf of Mexico with one more due to start shortly."

Comments

Sarah Jane United States says:

$4.5 billion sounds like an impressive number... but it's a drop in the barrel for BP.

November 15, 2012 01:57 PM #

Comments are closed

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