BP & “Partners” In Nasty Fight Over Legal Liability for Spill
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On this July 4th weekend, we wonder:
Who will pay for the massive Gulf of Mexico oil spill, now the largest environmental disaster in American history?
For now, BP appears to be the deep-pocketed party footing many of the bills, including setting up a $20 billion fund to compensate victims of the spill.
But the legal endgame of sorting out the final tab among the companies that owned the well and worked on the Deepwater Horizon rig has also begun.
On this July 4th weekend, we wonder:
Who will pay for the massive Gulf of Mexico oil spill, now the largest environmental disaster in American history?
For now, BP appears to be the deep-pocketed party footing many of the bills, including setting up a $20 billion fund to compensate victims of the spill.
But the legal endgame of sorting out the final tab among the companies that owned the well and worked on the Deepwater Horizon rig has also begun.
Although BP has said time and again that it will clean up the spill and pay all legitimate claims,
the company has also put its former rig partners on notice that they will be sharing those costs.
And the partners are fighting back.
It is a war of words pitched as much to the ears of investors as to tomorrow’s jurists.
“Other parties besides BP may be responsible for costs and liabilities arising from the oil spill, and we expect those parties to live up to their obligations,”
said Tony Hayward, BP’s chief executive, in response to a statement from one of its partners in the well.
That partner, Anadarko Petroleum, has a 25 percent stake in the project,
and its joint operating agreement with BP gives it a 25 percent share of the liability, a potentially ruinous amount.
On June 18, Anadarko issued a blunt statement intended to distance itself from BP.
“The mounting evidence clearly demonstrates that this tragedy was preventable and the direct result of BP’s reckless decisions and actions,” said the company’s chief executive, Jim Hackett.
“Frankly, we are shocked,” he said. “BP’s behavior and actions likely represent gross negligence or willful misconduct.”
If Anadarko, in court or arbitration, can establish gross negligence or willful misconduct by BP, which owned 65 percent of the well,
then BP could end up being responsible for 100 percent of the spill.
Joseph A. Grundfest, an expert on business law at Stanford Law School, said Anadarko’s intent was clear.
“If BP’s conduct is sufficiently egregious,” he said, “then Anadarko might get off the hook for some or all of its liability as a co-owner of the well.”
Anadarko has reasons to send a strong and early signal that it will fight.
Investors, concerned about Anadarko’s potential exposure, have fled, lopping off nearly half its market value, or $19 billion, since the explosion.
Moody’s has lowered its bond rating into the junk range.
A spokesman for Mitsui Oil Exploration Company of Japan, which owns the remaining 10 percent of the well, said the company had given up its interest in oil from the well.
“All revenues obtained from the sale of that oil should go to assist those affected and help to restore the natural resources across the Gulf Coast,” Mitsui said in a statement.
The company may be hoping that relinquishing its interest will shield it from liability, though Mitsui declined to comment further.
The legal battle is also likely to extend beyond the circle of the well’s owners to the companies that helped drill the well,
predicted Dan Pickering, co-president of Tudor, Pickering, Holt & Company, an energy-focused investment bank in Houston.
“Everybody’s going to be pointing fingers at each other,” he said.
“Anadarko is going to be arguing with BP over the well design, BP is going to be pointing fingers at the service companies for the well drilling and evaluation process,
and the service companies are going to be pointing fingers back at BP, claiming it’s BP’s oversight and indemnification.
It’s a lawyer’s dream.”
The service companies have already said they will challenge attempts to hold them responsible.
A spokesman for Transocean, owner of the Deepwater Horizon rig, noted that its contract with BP requires BP to indemnify it.
The company’s president and chief executive, Steven Newman, said in a conference call last month that
“under our drilling contract for the Horizon, BP has agreed to assume full responsibility for the costs and the liability of pollution and contamination.”
“And we believe that contract is clear,” Mr. Newman added, in this article from the New York Times.
A spokeswoman for Halliburton, Cathy Mann, noted that its contract also
“requires the well owner to defend and indemnify Halliburton for all potential liability claims and expenses arising from the blowout,”
aside from claims of Halliburton employees.
Michael D. Green, an expert in tort law at the Wake Forest University School of Law, suggested that BP might try to argue in court that other companies involved in the drilling process were negligent —
for example, the manufacturer of the blowout preventer — and might say that such equipment was designed, manufactured or installed poorly.
BP might also argue that, since its plans were approved by the federal government, it should not be found grossly negligent.
Whatever happens among the companies, yet another round of litigation is likely between BP and the insurance companies.
“What they all want to do is have the insurance companies pay, if possible,” said Tom Baker, a professor at the University of Pennsylvania Law School who specializes in insurance.
That, too, will be a fight — one that is already under way.
BP, like most big oil companies, is self insured.
But the insurers for the service companies are already moving to make sure that they do not get dragged in.
Last month, Lloyd’s of London asked a federal judge in Texas to declare that it would not have to cover BP’s “excess liability” in cleanup and other costs.
Lloyd’s argued that Transocean’s contract limits insurance protection to pollution “originating above the surface of the land or water.”
Because the spill, Lloyd’s argued, is “below the surface and from BP’s well, those liabilities are not within the scope of the additional insured protection.”
The spill is so big and the liability so vast, Mr. Pickering said, that it will ultimately change the way the oil business is conducted.
“The definition of how an operator drills wells, going forward, is going to be much more clearly defined,” he said. “The liability doesn’t stop until the well does.”
Happy July 4th, America 😉 !!!
