By Daniel Gilbert
NEW ORLEANS--A federal judge signaled Tuesday that he may allow
BP PLC to pay pollution fines over time rather than in a lump sum,
as the company and government lawyers sparred over billions of
dollars in possible penalties for the Deepwater Horizon oil spill
in 2010.
Judge Carl Barbier's interjection, during opening statements in
a civil trial over Clean Water Act fines, raised the prospect that
he could impose a significant penalty but lessen the immediate
impact on BP by allowing it to pay in installments, legal observers
said. The company is arguing for reduced fines, in part because it
says it has been hurt by falling oil prices in recent months.
BP faces a maximum $13.7 billion penalty under the U.S. Clean
Water Act for the largest offshore oil spill in U.S. history. The
Justice Department is seeking a fine of at least $11.7 billion,
emphasizing BP's wealth and the severity of the spill that fouled
hundreds of miles of coastline.
Robert C. "Mike" Brock, a lawyer for BP, said in an opening
statement that a fine of more than $2.3 billion would exhaust the
available capital of the subsidiary charged with the violations, BP
Exploration & Production Inc., and that the parent company
isn't required to cover higher penalties. The value of the
subsidiary's assets has shriveled by about a third, he added,
largely because of the plunge in oil prices.
In an uncommon move, Judge Barbier stopped Mr. Brock as he
described the BP subsidiary's financial condition.
"I hate to interrupt," the judge said. "Is there any reason that
any penalties can't be structured to be paid over a number of
years?"
The question appeared to catch Mr. Brock off guard. "I don't
know," he said, adding that the parties hadn't discussed the
matter.
Steve O'Rourke, a government lawyer, said he knew of one such
precedent for a Clean Water Act penalty but didn't elaborate.
Daniel Jacobs, a professor at American University watching the
proceedings, said Judge Barbier "might well be considering such a
substantial penalty from the standpoint of financial impact on the
company, payments would need to be structured over time." Mr.
Jacobs, a former federal environmental prosecutor, said he expects
the fine to be "record-setting."
The highest penalty imposed under the act to date is the $1
billion that Transocean Ltd. paid in a 2013 settlement over the
same spill.
The trial represents the final phase of the Clean Water Act
litigation, which could be the single largest penalty BP still
faces for the aftermath of the spill. The company has already
agreed to spend $43 billion in spill-related costs, including $3.5
billion it set aside for the fines.
Judge Barbier divided the Clean Water Act litigation into three
segments. In the first phase, over what caused the rig blaze and
oil spill, he ruled that BP acted recklessly to cut costs and
failed to conduct safety tests that might have showed the well
hadn't been properly sealed.
In the second segment, the judge ruled last week that BP wasn't
negligent in its efforts to staunch the flow of oil over nearly
three months, and that it was liable for 3.19 million barrels that
leaked into the Gulf.
To impose the penalty, the judge will weigh the steps BP took to
mitigate the spill and other factors along with findings from his
earlier rulings. Federal prosecutors are seeking the maximum fine,
$4,300 per barrel, which would be more than 10 times the size of
the largest penalty to date imposed under the Clean Water Act.
BP, which argues the fine should be capped at $3,000 per barrel,
will present evidence that its efforts spared the Gulf from dire
environmental and economic impacts. The company also maintains that
it is a vital economic force in the region, as an employer and a
payer of oil-and-gas royalties, and that a fine toward higher end
of the range would damage it economically.
In court, Mr. Brock called BP's cleanup efforts a success,
claiming 37% of the crude that spilled has been removed from the
Gulf.
"We now have a massive amount of data that demonstrates that the
Gulf did not suffer what was feared," he said. "There has been no
collapse of the ecosystem."
The government is also seeking a fine for Anadarko Petroleum
Corp., which owned 25% of the ill-fated well and faces a penalty of
up to $3.5 billion.
Anadarko argued Tuesday it was a passive investor in the venture
and should pay no fine. The company "committed no act that needs to
be deterred," said Ky Kirby, a lawyer for Anadarko.
The government says Anadarko should have to pay "significantly
higher" than $1 billion but less than the maximum, citing
settlements made by drilling contractor Transocean Ltd. for $1
billion, and by Mitsui & Co.'s MOEX Offshore, the owner of 10%
of the well, for $90 million.
Write to Daniel Gilbert at daniel.gilbert@wsj.com
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