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November 15, 2012

BP to pay $4.5B; two may face manslaughter charges

NEW ORLEANS — BP said Thursday that it will pay $4.5 billion in a settlement with the U.S. government over the massive 2010 oil spill and will plead guilty to felony counts related to the deaths of 11 workers and lying to Congress.

The figure includes nearly $1.3 billion in criminal fines – the largest such penalty ever – along with payments to several government entities.

A person familiar with the settlement said two BP employees will also face manslaughter charges over the deaths of 11 people in the explosion of the Deepwater Horizon oil rig that triggered the massive spill. The person was not authorized to discuss the matter on the record and spoke on condition of anonymity.

“We believe this resolution is in the best interest of BP and its shareholders,” said Carl-Henric Svanberg, BP’s Chairman. “It removes two significant legal risks and allows us to vigorously defend the company against the remaining civil claims.”

The settlement includes payments of nearly $2.4 billion to the National Fish and Wildlife Foundation, $350 million to the National Academy of Sciences and about $500 million to the Securities and Exchange Commission.

London-based BP PLC said in a statement that the settlement would not include civil claims under the Clean Water Act and other legislation, pending private civil claims and state claims for economic loss.

The charges BP will plead guilty to include 11 felony counts of misconduct or neglect of ships officers, one felony count of obstruction of Congress and one misdemeanor count each under the Migratory Bird Treaty Act and the Clean Water Act. The 11 counts related to the workers’ deaths are under a provision of the Seaman’s Manslaughter Act.

The obstruction charge is for lying to Congress about how much oil was pouring out of the ruptured well.

Attorney General Eric Holder was scheduled to discuss the settlement at an afternoon news conference in New Orleans.

BP made a profit of $5.5 billion in the third quarter.

The largest previous corporate criminal penalty assessed by the Department of Justice was a $1.2 billion fine imposed on drug maker Pfizer in 2009.

The Deepwater Horizon rig, 50 miles off the Louisiana coast, sank after the April 20, 2010, explosion. The well on the sea floor spewed an estimated 206 million gallons of crude oil, soiling sensitive tidal estuaries and beaches, killing wildlife and shutting vast areas of the Gulf to commercial fishing.

Nelda Winslette’s grandson Adam Weise, of Yorktown, Texas., was killed in the blast. She says somebody needs to be held accountable, even if it doesn’t end her family’s pain.

“It just bothers me so bad when I see the commercials on TV and they brag about how the Gulf is back, but they never say anything about the 11 lives that were lost. They want us to forget about it, but they don’t know what they’ve done to the families that lost someone,” she said.

The spill exposed lax government oversight and led to a temporary ban on deepwater drilling while officials and the oil industry studied the risks, worked to make it safer and developed better disaster plans.

BP’s environmentally-friendly image was tarnished, and independent gas station owners who fly the BP flag claimed they lost business from customers who were upset over the spill. BP chief executive Tony Hayward stepped down after the company’s repeated gaffes, including his statement at the height of the crisis: “I’d like my life back.”

The cost of BP’s spill far surpassed the Exxon Valdez spill in 1989. Exxon ultimately settled with the U.S. government for $1 billion, which would be about $1.8 billion today.

The government and plaintiffs’ attorneys also sued Transocean Ltd., the rig’s owner, and cement contractor Halliburton, but a string of pretrial rulings by a federal judge undermined BP’s legal strategy to pin blame on them.

At the time of the explosion, the Deepwater Horizon was drilling into BP’s Macondo well. The rig sank two days later.

After several attempts failed, engineers finally were successful in capping the well on July 15, 2010, halting the flow of oil into the Gulf of Mexico after more than 85 days.

The disaster also created a new lexicon in American vocabulary – such as top kill and junk shot – as crews used innovative solutions to attempt to plug the spewing well with pieces of rubber. As people all over the world watched a live spill camera on the Internet and television, the Obama administration dealt with a political headache, in part because the government grossly underestimated how much crude was spilling into the Gulf.

U.S. District Judge Carl Barbier in New Orleans was assigned to oversee tens of thousands of court claims spawned by the explosion. A trial date was set, but Barbier postponed it so BP could hammer out a deal with attorneys for Gulf Coast shrimpers, commercial fishermen, charter captains, property owners, environmental groups, restaurants, hotels and others who claim they suffered economic losses after the spill. Relatives of workers killed in the blast also sued.

Barbier gave his preliminary approval to that proposed settlement in May and scheduled a February trial for the remaining claims, including those by the federal government and Gulf states.

In a pretrial court filing, the Justice Department said it would argue that BP’s actions and decisions leading up to the deadly blowout amounted to gross negligence.

“We do not use words like ‘gross negligence’ and ‘willful misconduct’ lightly,” a Justice Department attorney wrote. “But the fact remains that people died, many suffered injuries to their livelihood, and the Gulf’s complex ecosystem was harmed as a result of BP and Transocean’s bad acts or omissions.”

One of Barbier’s rulings possibly insulates Transocean and Halliburton from billions of dollars in liability. Barbier said Transocean and Halliburton weren’t obligated to pay for many pollution claims because of contracts they signed with BP.

The Justice Department opened a criminal investigation of the spill. Until now, the only person charged was former BP engineer Kurt Mix, who was arrested in Texas in April on obstruction of justice charges. Mix is accused of deleting text messages about the company’s response to the spill, not what happened before the explosion.

The companies also sued each other, although some of those cases were settled last year. BP has sued Transocean for at least $40 billion in damages.

And there are still other claims against BP from financial institutions, casinos and racetracks, insurance companies, local governments and losses caused by a government-imposed moratorium on drilling after the spill.

None of those are covered by BP’s proposed settlement with the private lawyers.

A series of government investigations have spread blame for the disaster.

In January 2011, a presidential commission found that the spill was caused by time-saving, cost-cutting decisions by BP, Halliburton and Transocean that created unacceptable risk. The panel didn’t point blame at any one individual, concluding the mistakes were caused by systemic problems.

In September 2011, however, a team of Coast Guard officials and federal regulators issued a report that concluded BP bears ultimate responsibility for the spill. The report found BP violated federal regulations, ignored crucial warnings and made bad decisions during the cementing of the well a mile beneath the Gulf of Mexico.

BP has repeatedly said it accepts some responsibility for the spill and will pay what it owes, while urging other companies to pay their share.

BP waived a $75 million cap on its liability for certain economic damage claims under the 1990 Oil Pollution Act, though it denied any gross negligence.

 

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