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Oil industry ‘hiding risks' as BP faces $21bn Deepwater fines

October 2012

BP has been accused of ‘gross negligence or wilful misconduct' over its Deepwater Horizon accident, which spilled nearly five million barrels of oil into the Gulf of Mexico in 2010.

The accusation, by a US district court, could result in fines of up to $21bn (£13bn, €16.3bn) under the Clean Water Act if the case reaches a criminal hearing next year – in addition to the private settlements estimated at $7.8bn to private stakeholders, which are awaiting a district court endorsement.

US Department of Justice lawyers followed up with papers saying BP had made ‘plainly misleading representations' in its settlement proposals. They wrote: “The behaviour, words and actions of these BP executives would not be tolerated in a middling-size company manufacturing dry goods for sale in a suburban mall.”

The trenchantly critical official statements lessen the chances of an out-of-court settlement with the government that would avert the hearing, which starts in January and is likely to be lengthy.

BP intends to deny the gross negligence charge and maintains many other companies are also to blame for the disaster.

Transocean, one of the companies named by BP, has also been accused by the Department of Justice of gross negligence but is discussing a $1.5bn settlement of its civil and criminal liabilities with the government.

BP's investors are taking comfort from the company's deal to sell off several of its Gulf of Mexico oilfields to the Houston-based company Plains Exploration & Production for $5.5bn.

The sale would swell to $32bn the fund BP has accumulated to pay the fines and compensation settlements. BP's target is $38bn. To get closer to this figure, the company aims to sell its Texas City refinery, where an explosion in 2005 killed 15 people and injured 170.  

Despite the sell-off, BP insists it is staying in the Gulf of Mexico. In June it gained 43 new drilling leases there and is organising production around four main centres.

Deepwater Horizon triggered a study by the US Securities & Exchange Commission (SEC), whose aim is to protect investors and maintain fairness in business. The SEC criticised a lack of transparency after investigating ten of the world's largest oil and gas companies – Apache, BP, Chevron, ConocoPhillips, ENI, ExxonMobil, Marathon, Shell, Suncor and Total.

The report said oil and gas companies were not explaining risks clearly to investors, even though thorough disclosure is demanded for corporate reporting in SEC filings. Not one, said the SEC, provided high-quality reporting of all the climate change and sea drilling risks or of their management.

Relatively better climate risk disclosure was noted at BP, ENI and Suncor, and the weakest at Apache, Marathon and ExxonMobil.

BP and Total showed relatively better disclosure of drilling risk at sea, and Suncor's was the worst, said the report. The investigators observed that BP's transparency on sea drilling improved after the spill.

The SEC recommended the companies should give more information on climate change risks and opportunities, and that investors and regulators should continue applying pressure for this.
Federal and state governments were advised equally to communicate scientific findings and other climate change data to companies, investors and regulators.

Better disclosure was recommended on exploration and production at sea, particularly of environmental, health and safety data, spill prevention and response and management. Investors were asked to maintain the pressure and the SEC itself was told to concentrate on drilling-related risks.

Ceres, the US-based sustainability specialist, has issued a parallel report on today's growing oil production risks. It complains that the SEC's climate guidance omits risks, such as emissions management, and that reporting expectations are not robust enough “to ensure that disclosure completely reflects and sparks improvement in performance”.

It emphasises that investors must demand better-quality disclosure to be able to assess climate and drilling risks accurately.




BP | North America | Risk management

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