BP Agrees to Pay $4.5 Billion to Resolve Criminal Claims on Deepwater Horizon

You may have seen this elsewhere, but just in case, BP today announced Nov. 15 that it’s “agreed with the United States government, subject to court approval, to resolve all federal criminal charges and all claims by the Securities and Exchange Commission (SEC) against the company stemming from the Deepwater Horizon accident, oil spill, and response.”

BP reports that the agreement includes:
• Resolution of all criminal claims with U.S. Department of Justice, including $4 billion paid in installments over a period of five years;
• Resolution of all securities claims with SEC, including $525 million paid in installments over three years;
• Existing $38.1 billion charge against income to increase by approximately $3.85 billion; and
• Company preparing to defend itself against remaining civil claims.

“All of us at BP deeply regret the tragic loss of life caused by the Deepwater Horizon accident, as well as the impact of the spill on the Gulf coast region,” said Bob Dudley, BP’s group chief executive. “From the outset, we stepped up by responding to the spill, paying legitimate claims and funding restoration efforts in the Gulf. We apologize for our role in the accident, and as today’s resolution with the U.S. government further reflects, we have accepted responsibility for our actions.”

By eliminating the possibility of further federal criminal charges against the company based on the accident, BP reports it’s “taken another step forward in removing legal uncertainty and can now focus more fully on defending itself against all remaining civil claims.”

“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.”

As part of the resolution, BP has agreed to plead guilty to 11 felony counts of misconduct or neglect of ships officers relating to the loss of 11 lives; one misdemeanor count under the Clean Water Act; one misdemeanor count under the Migratory Bird Treaty Act; and one felony count of obstruction of Congress. This resolution is subject to U.S. federal court approval.

Thirteen of the 14 criminal charges pertain to the accident itself, and are based on the negligent misinterpretation of the negative pressure test conducted on board the Deepwater Horizon. BP acknowledged this misinterpretation more than two years ago when it released its internal investigation report. Today’s agreement is consistent with BP’s position in the ongoing civil litigation that this was an accident resulting from multiple causes, involving multiple parties, as found by other official investigations. The remaining criminal count pertains to two BP communications made to a member of Congress during the spill response about flow rate estimates. As part of its resolution of criminal claims with the U.S. government, BP will pay $4 billion, including $1.256 billion in criminal fines, in installments over a period of five years. BP has also agreed to a term of five years’ probation.

Under the resolution with the Department of Justice (DOJ), a total of $2.394 billion will be paid to the National Fish & Wildlife Foundation (NFWF) over a period of five years. In addition, $350 million will be paid to the National Academy of Sciences (NAS) over a period of five years.

Pursuant to the terms of the plea agreement, BP has also agreed to take additional actions, enforceable by the court, to further enhance the safety of drilling operations in the Gulf of Mexico. These requirements relate to BP’s risk management processes, such as third-party auditing and verification, training, and well control equipment and processes such as blowout preventers and cementing. In addition, BP has agreed to several initiatives with academia and regulators to develop new technologies related to deepwater drilling safety.

The resolution also provides for the appointment of two monitors, both with terms of four years. A process safety monitor will review, evaluate and provide recommendations for the improvement of BP’s process safety and risk management procedures concerning deepwater drilling in the Gulf of Mexico. An ethics monitor will review and provide recommendations for the improvement of BP’s Code of Conduct and its implementation and enforcement.

Under U.S. law, companies convicted of certain criminal acts can be debarred from contracting with the federal government. BP has not been advised of the intention of any federal agency to suspend or debar the company in connection with this plea agreement. BP will continue to work cooperatively with the debarment authority.

In its resolution with the SEC, BP has resolved the Commission’s Deepwater Horizon-related claims against the company under Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 and the associated rules. BP has agreed to a civil penalty of $525 million, payable in three installments over a period of three years, and has consented to the entry of an injunction prohibiting it from violating certain U.S. securities laws and regulations. The SEC’s claims are premised on oil flow rate estimates contained in three reports provided by BP to the SEC during a one-week period, on April 29 and 30 and May 4, 2010, within the first 14 days after the accident. This resolution is subject to U.S. federal court approval.

“Since the spill, we have worked hard to rebuild confidence in the company,” said Dudley. “We take seriously not only our commitment to safety and operational excellence but also our communications with stakeholders, including the public, the government and our investors.”

Looking forward, BP added it will continue to vigorously defend itself against all remaining civil claims and to contest allegations of gross negligence in those cases. The remaining claims include: federal civil claims, including those arising under the Clean Water Act; federal and state Natural Resource Damages claims; private civil claims pending in MDL 2179 that were not covered by the settlement with the Plaintiffs’ Steering Committee (PSC); private securities claims pending in MDL 2185; state economic loss claims; and miscellaneous private civil claims pending in other federal and state courts. BP believes that today’s agreement is consistent with its legal position that it was not grossly negligent. All the pleas related to the accident itself are based on no more than negligent conduct.

“From the outset, we made a commitment to clean up the spill and pay legitimate claims—and we’ve been fulfilling that commitment ever since,” added Dudley. “As we move forward, we are preparing to defend ourselves in court on the remaining claims. We are open to settlements, but only on reasonable terms.”

BP claims it has taken significant steps to further enhance safety and risk management throughout its global operations. It launched an internal investigation immediately after the accident, publicly released the results, and has been implementing all 26 of the investigation's recommendations. BP has also, among other things, made key leadership changes, reorganized its upstream business, created a centralized Safety and Operational Risk organization, and adopted new deepwater drilling standards in the Gulf of Mexico that exceed current regulatory requirements. BP has shared what it has learned with industry and regulators around the world.

“We are committed to building a safer, stronger BP,” said Svanberg. “This work did not begin with the Deepwater Horizon accident and will not end with today’s resolution.”

Over the past five years, BP reported it has invested more than $52 billion in the United States – more than any other oil and gas company, and more than it invests in any other country where it operates. The company employs 23,000 Americans and supports nearly a quarter of a million American jobs.

On top of this business investment, BP added it has spent more than $14 billion in operational response and clean-up costs. BP continues to monitor the Gulf and its shoreline, and the company has supported regional tourism, promoted Gulf seafood, and committed $1 billion to early restoration projects. BP also quickly set up a process to pay all legitimate claims and established a $20 billion trust to assure Americans that the resources to pay claims, settlements, and other costs would be there. To date, BP has paid more than $9 billion to individuals, businesses and government entities and has already agreed to a settlement with the plaintiffs’ steering committee, resolving the substantial majority of outstanding private economic loss, property damage and medical claims, which BP estimates will cost approximately $7.8 billion.

Jim Montague is the executive editor for Control, Control Design and Industrial Networking. Email him at jmontague@putman.net or check out his Google+ profile.

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