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BP Executive Says Explosion Was Known Risk

February 26, 2013 by Leave a Comment

 “There was a risk identified for a blowout,” said Lamar McKay, the former president of BP America and now chief executive in charge of global upstream operations. “The blowout was an identified risk, and it was a big risk, yes.”

 Bob Cunningham, a lawyer for private plaintiffs, tried to pin Mr. McKay down on BP’s responsibility for the 2010 disaster that left 11 workers dead and dumped millions of gallons of oil into the gulf. Mr. Cunningham suggested that BP’s cost-cutting and risk-taking culture were at the heart of the explosion and spill. He pressed Mr. McKay on the fact that a BP report on the accident did not cite management failures as a cause for the accident, while contractors were held responsible.

  But Mr. McKay repeatedly responded by saying that while BP was responsible for designing the well, the rig, cement and other contractors shared responsibility for safety on the drilling operations.  

  “It’s a team effort,” he said. “It’s a shared responsibility to manage the safety and risk.”

The Federal District Court trial in New Orleans is bundling suits brought by the Justice Department, state governments, private business and individual claimants against BP and several of its contractors. Decisions on culpability and damages could be a year or more away, but they are likely to have profound impacts on environmental law and determine the viability of BP as a major oil company with global ambitions.

Mr. McKay testified for about an hour at the end of the day, and will continue on Wednesday. He told the court that there were risks drilling both in deep waters and in shallow waters, but that a blowout could be more damaging in deep waters because it is more difficult to control. There was little if anything in Mr. McKay’s comments that diverged from what BP executives have said in the past.

After the April 2010 spill, internal BP documents showed that in March, after several weeks of problems on the rig, BP was struggling with a loss of “well control.” And for months earlier, it was concerned about the well casing and the blowout preventer, which are considered critical pieces in the chain of events that led to the disaster on the rig.

On June 22, 2009, for example, BP engineers expressed concerns that the metal casing the company wanted to use might collapse under high pressure.

“This would certainly be a worst-case scenario,” Mark E. Hafle, a senior drilling engineer at BP, warned in an internal report. “However, I have seen it happen so know it can occur.”

  At times on Tuesday, Mr. McKay shifted and appeared uncomfortable on the witness stand. He acknowledged that he had never read a textbook on safety system engineering before or after the accident or a safety report written by a BP consultant, who had testified earlier in the day.

   Mr. McKay was the second witness to appear in a multiphase trial that will find who was responsible for the accident, whether they were grossly negligent, and how much oil was spilled. He followed Robert Bea, a professor emeritus of engineering at the University of California, Berkeley, and former safety systems consultant for BP, who largely blamed the British company’s culture for the accident.

   “It’s a culture of every dollar counts,” Mr. Bea said. “It’s a classic failure of management and leadership.” 

  Under the Clean Water Act, fines against BP could range from $1,100 for every barrel spilled through simple negligence to as much as $4,300 a barrel if the company were found to have been grossly negligent. The federal government has estimated that about 4 million barrels of oil spilled in the accident, meaning liabilities of as much as $5.4 billion to $21 billion. BP has claimed that 3.1 million barrels should be the uppermost spill limit. 

This article has been revised to reflect the following correction:

Correction: February 26, 2013

An earlier version of this article misstated Lamar McKay’s title when he headed BP America. He was president, not chief executive.

Article source: http://www.nytimes.com/2013/02/27/business/energy-environment/bp-executive-says-explosion-was-known-risk.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Battle Lines Drawn for BP’s Day in Court

February 19, 2013 by Leave a Comment

For the last three years, BP’s efforts to explore and produce oil across the globe have been overshadowed by the accident that left 11 workers dead and soiled hundreds of miles of Gulf Coast beaches. The company has been forced to plead guilty to several felony charges, pay large fines and shake up its management team. Compelled to sell off oil assets to meet its expanding liabilities from the blowout and spill, BP has shrunk considerably in size, and the trial promises to extend the company’s distress.

The Federal District Court trial in New Orleans will bundle suits brought by the Justice Department, state governments, private business and individual claimants against BP and several of its contractors. Decisions on culpability and damages could be a year or more away, but they are likely to have profound impacts on environmental law and determine the viability of BP as a major oil company with global ambitions.

“BP and the government are taking a high-stakes gamble by going to trial,” said David Uhlmann, a University of Michigan law professor and a former chief of the Justice Department’s environmental crimes section, who expressed surprise that talks appear to have broken down. “The fate of Gulf Coast recovery efforts and billions of dollars in Clean Water Act penalties hang in the balance. Unless cooler heads prevail, and a settlement is reached, it now may be years before there is any certainty for BP and communities along the gulf.”

Given the pretrial disputes between BP officials and federal prosecutors over the extent of the company’s wrongdoing and the potential for billions of dollars in damages and mounting legal fees, it remains unclear whether any possibility for a settlement still exists on the eve of trial.

If the trial opens next week, the first of two trial phases is expected to center on whether BP and its contractors were guilty of gross negligence — tantamount to wanton and reckless behavior, or conscious disregard for reasonable care that is likely to cause harm or injury — in causing the Macondo well blowout.

BP pleaded guilty last year to 14 criminal charges, including manslaughter, admitted to negligence in misreading important tests before the blowout and agreed to pay $4.5 billion in fines and other penalties. Yet it plans to contend at trial that it should not be held solely responsible and that liability should be shared with contractors including Transocean, the rig owner and operator, and Halliburton, the company that cemented the well.

“Gross negligence is a very high bar that BP believes cannot be met in this case,” said Rupert Bondy, BP’s general counsel, in a statement on Monday. “This was a tragic accident, resulting from multiple causes and involving multiple parties. We firmly believe we were not grossly negligent.”

The Justice Department plans to argue that BP, as the owner of the well which oversaw the services of both Transocean and Halliburton, was ultimately responsible for a series of errors that produced the environmental catastrophe. The government is expected to argue that BP executives and personnel made a number of reckless decisions.

“We are fully prepared to take this case to trial,” said Wyn Hornbuckle, a Justice Department spokesman. “We intend to prove that BP was grossly negligent and that the company engaged in willful misconduct in causing this disastrous oil spill.”

Alabama, Mississippi, Florida and Louisiana have presented tens of billions of dollars more in claims, including lost tax revenue due to lost jobs and business, as well as costs related to responding to the spill.

Lawyers for the tens of thousands of people and businesses seeking redress for damages said they will argue that BP, Transocean, Halliburton and Cameron, the manufacturer of the failed blowout preventer, are all negligent or grossly negligent for mismanaging safety procedures.

“We’re confident that the evidence is compelling against these defendants,” said Jim Roy, the plaintiffs’ lead lawyer.

BP has set aside $42 billion for payments, much of which has come from divestments over the last three years, including the disposal of its stake in a Russian affiliate, TNK-BP.

The company has already spent more than $14 billion on spill response and cleanup, and nearly $10 billion in payments to affected local governments, individuals and businesses.

The second phase, scheduled to begin in September, will seek to determine how much oil was actually spilled in the gulf over the three months that the well was out of control.

Article source: http://www.nytimes.com/2013/02/20/business/battle-lines-drawn-for-bps-day-in-court.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

As Gulf Tourism Rebounds, BP Seeks to Lower Payments

July 15, 2011 by Leave a Comment

The numbers tell a similar story, with many tourism-related businesses having their best summer in years.

BP felt obliged to note this officially. Last Friday, in a court filing that included a detailed list of indicators of “the strength of the gulf economy,” BP argued that “there is no basis to assume that claimants, with very limited exceptions, will incur a future loss related to the spill.”

The response here: Hold on, it’s not that good.

Since the spill last year, messages from the coast have been somewhat mixed, with some businesses arguing that it is continuing to hurt the coast and that more assistance is needed, and others, often led by tourism officials, emphasizing the positive to entice visitors and consumers.

This is not necessarily contradictory, as the effects of the spill were infuriatingly uneven, and a business does not have to be empty to be hurting. But the summer of 2011, a strong one by a variety of measures, has made this balance harder to strike.

BP has long taken issue with the formula created by Kenneth R. Feinberg, who oversees the Gulf Coast Claims Facility, which is dispensing BP’s $20 billion compensation fund. Under the formula, settlements would generally be double the demonstrable losses from 2010, with money previously paid by the fund subtracted.

BP has been arguing that this “future factor” is too generous. That argument is revisited in its 29-page filing, pointing out the strong revenue figures for lodging in coastal tourism areas in the fall and spring, most surpassing figures from comparable times in 2009 and early 2010.

BP makes the same argument in regard to the strong performance of much of the seafood industry, though the filing devotes less attention to it — possibly because unresolved questions about the long-term ecological effects of the spill, as well as a lingering nationwide skepticism about gulf seafood, have made its recovery more debatable.

Tourism, on the other hand, seems rather straightforward.

Taxable lodging revenues from rentals in Gulf Shores and its neighboring resort town, Orange Beach, fell by more than half last summer.

After months of aggressive marketing, largely paid for with the tens of millions of dollars that BP sent to states for that very purpose, tourism officials are now boasting of record, or near-record, numbers: going in to the Fourth of July weekend, tourism officials here reported vacation rental occupancy rates that hovered near 100 percent, all above — and some far above — rates at comparable times in 2009.

These figures would seem to bear out BP’s assertion that the recovery has firmly set in, to the chagrin of some coastal residents.

“Our state and local leaders have been so quick to declare that the beaches, seafood and Gulf Coast are doing fine that we may have screwed up the chances of the remaining outstanding BP oil spill claims to be paid,” Rick Outzen, publisher of the Independent News, an alternative weekly in Pensacola, Fla., wrote on his blog. Business owners here acknowledge that it has been for the most part a good summer. But they are quick to add that the effects of the spill are more complicated than they may appear.

The tourism business is a lot like farming; it is seasonal and involves managing a financial cycle between fat and lean seasons.

Up to 90 percent of the income for many Gulf Shores businesses is made during June, July and August; by winter that money is largely gone and businesses usually take out lines of credit to prepare for summer.

This was the case going into the summer of 2010, which was itself projected to be something of a recovery year after 2009, a down season of recession and high gas prices.

But in 2010, there was no summer. Hotels sat empty or filled rooms only by offering steep discounts. Smaller businesses like beach chair rentals went under; charter boat operators barely hung on. The whole spend-save-borrow cycle was thrown off.

“What happened last winter was a lot of lenders stopped the line of credit because they didn’t know the impact of what the spill was going to be,” said Sheila Hodges, owner of a real estate firm in Gulf Shores. “We barely survived the winter. Some didn’t survive the winter.”

Article source: http://feeds.nytimes.com/click.phdo?i=b888943fa70ea1ee14be665b6051dd16

Filed Under: Business News Tagged With: , ,