Even though Parker’s seminar paper covers the Gulf Oil Spill extremely well, I do want to mention the final report by the federal government. The United States has now put the lion’s share of blame for the country’s biggest-ever offshore oil spill on BP. The government issued its final assessment of last year’s Gulf disaster in mid-September. This report could play a huge role in BP’s decision-making as it relates to settlement. It could also set the stage for criminal charges. The Coast Guard and the offshore oil regulator said in the report that BP was solely to blame for 21 of 35 contributing causes to the Macondo well blow-out that led to the leak, and shared blame for eight more. That was not good news for BP.

After the most definitive look yet at the disaster, investigators said BP focused excessively on containing costs and speeding up operations, and made a series of decisions that complicated cementing operations, which they said were the central cause of the disaster. While the findings were broadly in line with several previous investigations, this report offered the most comprehensive look at the government’s official view on the causes of the Gulf oil spill, including analysis of the recovered blowout preventer and violations of federal regulations by the companies involved with the well. It was significant that the report said: “BP’s cost or time saving decisions without considering contingencies and mitigation were contributing causes of the Macondo blowout.”

BP took a most interesting position when it said it agreed “with the report’s core conclusion — consistent with every other official investigation — that the Deepwater Horizon accident was the result of multiple causes, involving multiple parties, including Transocean and Halliburton.” The report highlighted a litany of errors that preceded last year’s explosion on the BP-leased Deepwater Horizon rig that killed 11 workers and poured more than 4 million barrels of oil from the well into the Gulf. The other companies sharing the blame to some degree all seemed pleased that BP was hit the hardest in the report.

The report said that BP failed to communicate decisions regarding the cementing that increased operational risks to Transocean, the contractor that owned and operated Deepwater Horizon. The cement’s failure to maintain the integrity of the well was the central cause of the blowout. BP worked with Halliburton to design the cement job. Because the well was over budget, “BP sought to minimize these losses by reducing the volume of cement it pumped into the well” and a key analysis recommended by a Halliburton engineer was skipped, according to the report.

As we have previously reported, the Justice Department has already sued the well’s owners, BP, Anadarko Petroleum Corp and Mitsui & Co, as well as Transocean. These civil claims are now before the federal court in New Orleans, where a trial allocating blame for the spill will begin in February. Many believe the report increases the likelihood that BP, Transocean, and Halliburton will face criminal charges for their roles in causing the Gulf oil spill. That is the belief of David Uhlmann, a professor at University of Michigan Law School, who formerly was the top environmental crimes prosecutor for the Justice Department. In June 2010, Attorney General Eric Holder announced that the Justice Department had opened criminal and civil investigations into the causes of the disaster.

The findings from the report could cause BP to put over $30 billion on the table to settle all of the claims against the giant oil company, according to a story by Tom Bergin. The joint Coast Guard and Bureau of Ocean Energy Management, Regulation and Enforcement probe into the Macondo well blow-out resulted in this report. It certainly appears that this report was even more damning of BP’s behavior than the Presidential panel’s findings, which were issued in January and February. But each report also highlighted mistakes made by BP’s contractors, driller Transocean and cement specialist Halliburton.

BP has said it estimates the cost of the oil spill will end up at around $42 billion, including all environmental costs, compensation, legal claims and fines. I believe the total payment from BP – whether by court action or settlement – will be much greater. While BP has allocated $3.5 billion for Clean Water Act fines, if the oil giant is found to have been grossly negligent, which is very likely, it will be fined much more than $21 billion.

Even before the conclusion of the highly-critical official investigations, the government indicated it would push hard for the higher level of fines associated with gross negligence. Thus far nothing has happened to change that position. In my opinion, a huge fine is a certainty and I believe BP knows it. BP’s provision for payouts also excluded punitive damages, but Judge Carl Barbier has now ruled these damages can be claimed. That ruling is very important and will result in BP paying much more in damages than it “wants to pay.”

Source: Insurance Journal