Environmental Protection Agency officials are reviewing BP’s troubled record of drilling for oil on U.S. soil and federal waters to determine whether the company should be barred from receiving government contracts. Such a move, if it comes to pass, could cost the company billions of dollars in revenue.
Throughout the last decade, BP has paid several million dollars in fines to U.S. regulatory agencies and has been implicated in four instances of criminal misconduct. However, the oil industry’s “cozy relationship,” with the Minerals Management Service, as President Obama put it, may have shielded BP from actions harsher than token fines. Until now the company has been allowed to continue its U.S. drilling operations on the promise that it would clean up its act.
However, the Deepwater Horizon disaster, which has already amounted to the worst environmental catastrophe in U.S. history, has federal regulators seriously reconsidering granting BP new contracts and possibly canceling existing ones.
A hint of this trouble came when the EPA abruptly suspended negotiations with BP over the possibility the company could be barred from further federal contracts for its unlawful record prior to the Deepwater Horizon spill. Regulators say the talks are suspended until more is known about BP’s responsibility in creating the monstrous oil slick that continues to spread across the Gulf.
According to the EPA, it may choose to ban companies such as BP from future contracts after considering “the frequency and pattern of the incidents, corporate attitude both before and after the incidents, and changes in policies, procedures, and practices.”
Companies that engage in fraudulent, reckless, or criminal conduct can be legally barred from receiving federal contracts. If the problem is serious enough, sanctions could be applied across an entire corporation rather than a single division or facility. In this form of suspension, known as “discretionary debarment,” U.S. business contracts, land leases, drilling rights, and loans could all be stopped for BP if regulators determine it is too risky to allow operating on U.S. territory.
If the sanctions lead to the cancellation of BP’s existing federal leases, the company would automatically lose billions of dollars. BP is the largest oil and gas producer in the Gulf of Mexico. It also operates about 22,000 oil and gas wells throughout the U.S., many of which are on federal lands or water. These wells produce about 40 percent of the BP’s annual oil and gas production, worth about $16 billion.
It’s an interesting scenario. Obviously, had U.S. regulators done their job and taken stronger action against BP like they were supposed to, the Deepwater Horizon incident would likely never have occurred. But now that the spill has happened, releasing unknown thousands of barrels into the Gulf every day, it would do the U.S. little good to see B.P go bankrupt because American taxpayers would inherit the massive bill for damages, which will likely cost several tens of billions of dollars. The spill will hopefully serve as a wake-up call for U.S. regulatory agencies across the board, whether they’re regulating cars, prescription drugs, mining operations, or food safety, to enforce the rules that became part of our federal law for a very good reason.