Hester Q&A – BP Settlement

Feb. 4, 2013 – A federal  judge on Jan. 29 approved an agreement between BP and the U.S. Department of Justice to settle criminal charges against the energy giant with payment of $4 billion in penalties for the 2010 oil rig explosion and spill that killed 11 workers and fouled hundreds of miles of Gulf shoreline. The company pleaded guilty to 14 criminal charges, ranging from obstruction of Congress to felony manslaughter. The settlement includes $1.2 billion in fines, a record for resolving corporate criminal charges. The agreement also provides for payments of nearly $2.4 billion to the National Fish and Wildlife Foundation and $350 million to the National Academy of Sciences. BP still faces federal civil claims as well as claims from relatives of the victims and property and business owners affected by the massive spill. Tracy Hester, a visiting assistant professor and director of the Environment, Energy and Natural Resource Center at the Law Center, answered questions about the settlement. (Prior to joining the faculty in 2010, Hester practiced as a partner with Bracewell & Giuliani LLP for 16 years and led the Houston office's environmental group, at times representing a party to the Macondo lawsuits.)

Q.) Some critics, including members of victims' families, are calling this $4 billion settlement a slap on the wrist even though the fine itself is a record for resolution of corporate criminal charges.  What is your reaction to this agreement?

The size of the fine is record-setting, but it is only a minor dent in BP's annual earnings.  The nature of the settlement is more important — as a criminal penalty, it will be a heavy addition to BP's list of prior environmental criminal violations.  BP has pled guilty to felony manslaughter charges and to environmental crimes, and that burden will hurt its corporate reputation and affect its ability to seek future projects and permits.  By admitting to a criminal violation of the Federal Water Pollution Control Act, for example, BP also has triggered automatic provisions that have temporarily barred it from seeking future federal contracts until it persuades EPA to lift the bar.  That contract bar will likely keep BP from obtaining leases to drill in the Gulf of Mexico in the near future.

Q.) Part of the settlement provides for payment of nearly $2.4 billion to the National Fish and Wildlife Foundation and $350 million to the National Academy of Sciences. Is this something new in disasters like this?

It is a relatively new approach for major criminal penalties.  While EPA and DOJ often allow violators to settle civil suits by promising to perform Supplemental Environmental Projects which help particular projects or sites, criminal penalties have typically gone straight to the U.S. Treasury.  This innovative settlement approach allows BP's criminal fine to support research and work that will help the regions most injured by the spill.  While Congress has passed the RESTORE Act to decide how states and agencies will receive funds from any future civil penalties or settlements resulting from the Deepwater Horizon catastrophe, that law does not apply to criminal fines.

Q.) What's next? BP still faces federal civil claims as well as claims from relatives of victims, business and property owners affected by the massive spill. Estimates range as high as $30 or $40 billion more. How and when do you see all of this being resolved?

The trial over BP's federal civil liability will start in New Orleans this month.   BP and the United States disagree sharply on two key issues in particular:  the amount of oil actually spilled into the Gulf, and whether BP acted with gross negligence.  BP would face dramatically higher civil penalties if the judge adopts the United States' calculation of the oil spill's size (and whether to include petroleum that BP captured through its spill response), and those fines in turn could triple if the court rules that BP acted with gross negligence.  Most observers had expected BP to seek a settlement that would resolve all of its liabilities (both civil and criminal), but the separate criminal settlement now increases the chances that BP will go to trial over the size of its civil penalty.

Q.) Has the blowout had a major effect on the energy industry worldwide, prompting new federal regulations or reluctance on the part of energy companies to undertake risky projects?

The Deepwater Horizon blowout led to the reorganization of the federal agency that regulated offshore oil and gas production, tougher restrictions and penalties on producers and contractors who engage in risky activity, and increased sensitivity to the risk of commercial disruptions caused by the shutdown of Gulf production during the disaster response.  It remains unanswered, however, whether these additional steps will satisfy critics of offshore energy production (particularly in sensitive areas such as the Chukchi Sea), and the strong demand for energy will continue to propel efforts to expand production in the Gulf of Mexico.

To schedule a media interview with Hester, contact Carrie Criado, Executive Director of Communications and Marketing, 713-743-2184, cacriado@central.uh.edu; or John T. Kling, Communications Manager, 713-743-8298, jtkling@central.uh.edu.