Saturday, January 5, 2013

BP Oil Spill: Transocean reaches Deal with US DOJ without anyone going to the Slammer!

"This resolution of criminal allegations and civil claims against Transocean brings us one significant step closer to justice for the human, environmental and economic devastation wrought by the Deepwater Horizon disaster." - Attorney General Eric Holder

In case you are wondering if Transocean recalcitrance from reaching a deal with British Petroleum on the disaster at Macondo well paid off for the company. Oil and Gas futures and industry analysts will tell you, probably not, if not a resounding, No! The company’s recalcitrance on the extent of its liability, both against U.S. Regulators and Executives at British Petroleum, did more harm to the company’s bottom line and reputation as partner in oil and gas production exploration. The exception probably comes from the numerous agreements initially entered by the company with British Petroleum. What may Oil and Gas industry leaders learn from this long standing acrimony between Transocean and British Petroleum on the one hand; and, the United States Regulators on the other hand? 

Two and a half years after the Deepwater Horizon rig explosion, Transocean, the operator of Macondo well, agrees to a two year One billion dollar civil penalty; and, an additional 400 million dollars for criminal liability for its part in violation of parts of the Clean Water Act. Any exception on this agreement entered with the United State Department of Justice by the Switzerland headquartered Transocean, may come up for review; and, the company is still not out of the woods with respect to economic losses by residents of the Gulf Coast States and British Petroleum. What is unique about this agreement is that, safety of employees and training with respect to environmental impact of operations, are taken into consideration in apportioning blame and restitution for a disastrous explosion on a work site, resulting in deaths.

As provided for in OPA 90, the Rivers and Harbors Act 1899 (Refuse Act) or the Clean Water Act, facilities operator like British Petroleum can protect themselves from economic liability of contractors’ negligence by requiring contractors to carry insurance in full contract details; regarding possible mayhem similar to what happened at Macondo well. A prudent operator may insist that without an insurance coverage of contractors’ activities, it is not going to do business with the contractor. For example, in addition to compliance with federal, state and local government requirements, regarding operations like securing a well taking storage of industrial liquids, or black gold flowing into Macondo well, British Petroleum, principal facility operator, may refuse to do business with Transocean, the contractor. For Transocean failures to secure the Macondo well, the company is now responsible for claims pending in courts from British Petroleum and Gulf States’ resident in addition to its agreement with the United States Department of Justice.

The moral of this settlement is that a company may be held liable for negligence to secure a storage port for black gold, even if it takes directives from the Owner of the well, like British Petroleum. U.S. Department of Justice may not have totally mitigated the complete loss to British Petroleum and residents of the Gulf States from the failure of Transocean to secure the Macondo well. Transocean was expected to exert some control over the stability of the well and consequential exposure that led to the sinking of the well. Notwithstanding British Petroleum engineer's inability to stop the oil flow from the the Deepwater Horizon rig, Transocean is probably still responsible for additional cost associated with environmental damage to Gulf Coast; including pollution of the beaches, fishing grounds and marshes. In the opinion of United States Justice Department, Transocean failed to fully investigate clear signs that Macondo well was insecure as oil and gas flowed into the well from Deepwater Horizon one mile deep; and, fifty miles off the coast of Southern Louisiana. The extent of economic or financial liability to British Petroleum and residents of the Gulf Coast are likely to be further resolved in the court of law, if an arbitration is not completed between the parties.

Further, Halliburton, the company providing cement services at the Macondo well, will fork out additional restitution, in addition to the money it had already plucked down to British Petroleum. Culpable liability in the case of negligence of the Transocean may have made Halliburton liable for environmental damage, just as British Petroleum. For the records, prior agreements between Halliburton and British Petroleum regarding restitution for economic loss may have an implication for further financial obligation to residents of the five Gulf Coast States.

In addition to February 2012 Transocean shareholders’ woes of not receiving dividend due to close to 6 billion investment loss, most of which are attributed to contingencies surrounding the sinking of the Macondo well, the company agreed to spill prevention and training for employees on projects as part of its liability at Macondo well, in its agreement with the US Department of Justice. The extended obligations in the agreement emanate from legal conclusion that Transocean was negligent in the deaths of the eleven workers from the spill at Macondo well, just as British Petroleum and other parties on the project.

Now, the good news for Transocean in this settlement over the provisions of OPA 90 and the 1972 Federal Water Pollution Control Act Amendment are twofold: 1) According to the provisions of OPA 90, the operator of a facility receiving liquid (oil) from a vessels or drill source is deemed responsible for associated negligence; however, the facility operator may turn around and sue the negligent owner of the rig (British Petroleum) for indemnity. 2) Unlike the two British Petroleum workers, Donald Vidrine and Robert Kaluza, facing criminal liability that will end their career in a slammer, no Transocean employee is facing criminal liability or its probability. This probably is the ray of hope for Transocean in the settlement with the US regulators.

Unequivocally, the abandoned Deepwater Horizon rig under the threat of explosions and deaths remains the burden of British Petroleum. The ultimate cost of the clean up of the oozing oil remains the obligation of the company. Under section 1002(a) of OPA-90, British Petroleum is liable for the specified damages resulting from the discharged oil into the Gulf of Mexico, so also, is the cost for the removal or dispersion as the case maybe, for additional environmental cost damage resulting from the incident of April 20, 2010. Thus, while Transocean has borne some burden for the cost of the damage from the Deepwater Horizon disaster, the ultimate cost of violation of public law emanating from the worst oil spill disaster in US history, lies with British Petroleum.

What other things may members of the Oil and Gas Industry learn from this unfortunate experience? 

1) Operators of facilities receiving and storing liquid black gold has responsibility to take custody of the product; however, it shares some liability where violation of the provisions of OPA-90, the Rivers and Harbors Act 1899 (Refuse Act) or the Clean Water Act (Federal water Pollution Control Act Amendment of 1972), are concerned;

2) Contractors on oil and gas drilling exploration may stand up and get on about their business after a horrendous disaster; however, majority of the liability regarding a disaster remains with the owner of the rig or licensee from the US government;

3) A non-operating interest in an oil and gas exploration prospecting may be financially liable under signed contracts agreement, even if it does not have an immediate representation at the accidental explosion site; Anadarko Petroleum is a case in point with respect to what went down at the Deepwater Horizon rig and or Macondo well.

4) There is hefty cost to pay for negligence; and for the first time, it could involved jail time for executives and or employees of the oil and gas exploration; and, the threshold to prove negligence may be as low as the US regulators choose or abide with, regarding legal provisions on the books; and,

5) Oil and Gas exploration is still a very risky business; and, there is need for the protection of employees who lay their live on the line everyday to find the carbon-based source of energy.
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