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BP to plead guilty to felonies, pay $4.5bn in Gulf oil spill settlement

11.15.2012  |  HP News Services

Federal prosecutors also filed criminal charges against three employees of BP over the disaster, including two engineers who were on the drilling rig when it exploded.

Keywords:

By TOM FOWLER

BP has agreed to plead guilty to felony charges and pay $4.5 billion in penalties, including $1.26 billion in criminal fines, stemming from the Deepwater Horizon disaster that killed 11 workers in 2010 and unleashed the worst offshore oil spill in US history.

Separately, federal prosecutors filed criminal charges against three current or former employees of BP over the disaster, including two engineers who were on the drilling rig when it exploded and a higher-level executive involved in the energy company's spill response.

BP said Thursday it will plead guilty to 11 felony counts of "misconduct or neglect of ships officers" relating to the deaths aboard the drilling rig, and to one felony count of obstruction of Congress stemming from information it gave about the rate that oil was leaking from the well.

This resolution is subject to US federal court approval.

The company also will plead guilty to a misdemeanor count under the Clean Water Act and another misdemeanor under the Migratory Bird Treaty Act.

BP said it would pay $2.394 billion to the National Fish & Wildlife Foundation over five years and $350 million to the National Academy of Sciences over five years.

The penalties BP agreed to pay include $525 million in civil penalties over three years to settle claims by the Securities and Exchange Commission over the company's reporting on the oil-flow rate in the two weeks following the accident on April 20, 2010.

"We apologize for our role in the accident, and as today's resolution with the US government further reflects, we have accepted responsibility for our actions," said Bob Dudley, BP's CEO.

In the most serious charges against the employees, Don Vidrine, 65, and Robert Kaluza, 63, who were stationed on the Deepwater Horizon when it suffered the deadly well blowout, each has been charged with 11 counts of "seaman's manslaughter," 11 counts of involuntary manslaughter and one violation of the Clean Water Act.

The charges stem from their alleged failure to interpret key safety tests properly.

The men could face up to 10 years in prison for each manslaughter count and up to eight years for the Clean Water Act count.

Lawyers for Mr. Kaluza said that their client was innocent of the charges and that the government was making him a scapegoat. "Bob was not an executive or high-level BP official," Shaun Clarke and David Gerger said. "He was a dedicated rig worker who mourns his fallen co-workers every day."

Mr. Vidrine's lawyer couldn't immediately be reached for comment.

David Rainey, BP's former head of Gulf of Mexico exploration, has been charged with obstruction of Congress and making false statements to a law-enforcement officer.

Mr. Rainey, the company's former head of Gulf of Mexico exploration, participated by phone in a May 4, 2010, closed-door briefing of members of the House Energy and Commerce Committee. He reiterated what was then the official spill estimate of 5,000 bpd.

But internal BP estimates prepared within the first week of the spill suggested the flow rate could be as high as 14,000 bpd.

Mr. Rainey could face up to five years in prison for each charge. His lawyers said he is innocent and will fight the charges.

"We are profoundly disappointed that the Department of Justice is attempting to turn a tragic accident and its tumultuous aftermath into criminal activity," lawyers Reid Weingarten and Brian Heberlig said.

Of the 14 criminal charges against the company, BP said 13 are based on the negligent misinterpretation of a "negative pressure test" conducted on board the Deepwater Horizon.

The Wall Street Journal reported in August 2010 that last-minute changes to the key safety test - and the decision to continue work despite unexpected results - contributed to the accident.

The company said it would appoint a monitor to review its safety and risk-management procedures in the Gulf of Mexico and recommend improvements. It will also install ethics monitor to review BP's code of conduct, its implementation and its enforcement.

BP said it hasn't been notified that it faces any ban from doing business with the federal government, which is sometimes the case when companies face felony charges.

The London company previously took a $38.1 billion charge for what it estimated was the maximum cost it would face related to the accident, but with Thursday's settlement it will increase that by $3.85 billion.

BP has raised about $35 billion so far from asset sales and other actions, including the recent $2.5 billion sale of its Texas City, Texas, refinery, the scene of a 2005 accident that killed 15.

BP has spent about $14 billion on spill response and cleanup and paid out more than $9 billion in claims to businesses and individuals affected by the spill.

The company also has entered into a settlement agreement with thousands of other businesses and individuals that will cost BP an estimated $7.8 billion, although that figure could climb. A federal judge is expected to give final approval to that settlement in coming weeks.

Although the settlement removes quite a bit of uncertainty for BP, it isn't by any means the end of its Deepwater Horizon legal issues.

The company still faces significant civil penalties under the Clean Water Act - which could range from around $5 billion to about $20 billion if BP is found guilty of gross negligence, according to analysts.

BP also faces federal and state claims for damage to natural resources, as well as claims for wrongful death, personal injuries and economic losses. Many plaintiffs who sued over economic damages are covered by an estimated $7.8 billion settlement pending before a federal judge in New Orleans.

BP stressed that Thursday's agreement is compatible with its stance that "it was not grossly negligent," and said it would continue to fight allegations of gross negligence in remaining claims.

Putting the threat of lengthy and costly criminal litigation behind "is a positive development," said Simmons & Co. analyst Bill Herbert, adding that the figure was in line with what most observers expected.

The settlement also paves the way for Halliburton, which cemented the well drilled by Deepwater Horizon, and Transocean, which owned the doomed drilling rig, to strike their own agreements with the government.

In a recent SEC filing, Halliburton said as of Oct. 23, the Department of Justice hadn't commenced any criminal proceedings against the company, but the oil-field services provider said it couldn't predict the outcome of the department's criminal investigation.

Transocean said in an October filing it has discussed settling some federal civil and criminal claims for $1.5 billion, but an agreement hasn't been reached.

A federal task force based in New Orleans has spent the past 29 months investigating the accident. Prosecutors have reviewed thousands of documents and conducted dozens of interviews, including bringing individuals before a grand jury.

At stake are billions of dollars that would flow to five states affected by the spill, which gushed 4.9 million bbl of crude into the Gulf of Mexico.

The BP criminal settlement is close to the $1.3 billion fine Pfizer Inc. paid in 2009 for marketing fraud related to a pain medicine, a record criminal fine.


Dow Jones Newswires



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Jagat Bandhu Sonar
11.20.2012

Interested to know what percentage of the Penalties are supposed to be contributed for Future Safe Design and Safe procedural precautions to be taken for the organisations devoted to green future to mankind of such operations?
Jagat Bandhu

Tom Taylor
11.17.2012

I agree with Jim's comments. These incidents are the result of a culture of production at all costs where senior leaders talk about safety but when things go sideways the front line staff take the heat. Real operational integrity and a culture of safe operating starts at the top. Having said that if you are a front line employee this should give you all the back up you need to stick to your guns on safety issues. YOU WILL BE HELD ACCOUNTABLE!

Steve
11.16.2012

I don't know why any of us get into engineering. The risk reward relationship is: failure - people dead & criminal prosecution, reward: a nice plaque on the wall. We should all just go into weather forecasting where you can be wrong all the time and never face recrimination!

Jim Kumana
11.16.2012

The real culprits are the senior managers within who created a system and culture that rewarded production at the expense of safety. As usual they have escaped personal responsibility or punishment, the engineers were made the scapegoats., and the passive stockholders (mainly retirement funds) have been made to pay. I know the company - they still continue to operate the same way despite public expressions of remorse. Watch for another similar incident coming up soon.

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