BP claims U.S. oil spill fines can bankrupt subsidiary

BP 435x292 BP claims U.S. oil spill fines can bankrupt subsidiaryBP faces paying several billions of dollars in oil spill fines for violating the U.S. Clean Water Act with its massive Deepwater Horizon oil spill, but the oil giant claims that any fines amounting to more than $2.3 billion would bankrupt its exploration and production operations.

In court papers filed March 27, BP argues that subsidiary BP Exploration & Production Inc. (BPXP) should not be forced to pay more than it claims it can afford for its negligence in the massive 2010 oil spill, which released an estimated 4.2 million barrels of oil into the Gulf of Mexico.

Under the Clean Water Act, civil and criminal penalties for the oil spill are assessed on a per-barrel basis of oil spilled. U.S. Judge Carl Barbier, who is overseeing the oil spill litigation in New Orleans, ruled that BP was grossly negligent in causing the spill, but reduced the company’s liability for the spill to 67 percent, shifting the rest to BP’s partner companies.

Although Judge Barbier hit BP with the maximum oil spill fine of $4,300 per barrel, he further lowered BP’s liability from 4.2 million barrels to 3.19 million barrels, taking into account the quantity of oil recovered.

With this formula, BP faces a fine of $13.7 billion, which is the amount the federal government is seeking, according to papers the U.S. Justice Department filed Mar. 27, saying the fines should top $12 billion at the very minimum.

Most of the money the U.S. collects from BP under the Clean Water Act will be funneled to the Gulf states for restoration and recovery projects, with Louisiana – the hardest hit of all the states – receiving the biggest cut.

“Imposing a penalty on BPXP anywhere near the amount suggested by the United States would dis-incentivize future operators from engaging in a robust and sustained response like that mounted by BPXP,” a BP spokesman told the National Law Journal. “Furthermore, a Clean Water Act penalty above the low end of the statutory range would threaten BPXP’s solvency and have a significant negative impact on BPXP’s expenditure in the Gulf region.”

A lawyer for BP told the National Law Journal that “BPXP’s spending since the incident had exhausted its own resources” and that that company has had to “rely on capital infusions from its parent companies to remain solvent.”

According to the National Law Journal, “Both sides disagreed as to whether Barbier should consider the assets of BP PLC, the London-based parent corporation, which reported $32.8 billion in annual operating cash flow on Feb. 3.”


National Law Journal