Energy giant BP’s willful misconduct and gross negligence led to the worst offshore oil spill in U.S. history, a federal judge said in a ruling Thursday that exposes the company to billions of dollars in civil penalties.
The Deepwater Horizon drilling rig, which BP leased and operated, exploded and sank in the Gulf of Mexico in April 2010, killing 11 men and spewing millions of barrels of oil into the ocean until the well was capped in July and finally sealed in September.
The ruling from U.S. District Judge Carl Barbier could lead to nearly $18 billion in civil penalties for polluting the gulf. BP had already agreed to pay $4 billion in criminal fines.
BP, which also owned the oil well, bears two-thirds of the blame for the spill, Barbier said, apportioning most of the rest to the rig owner, Transocean Ltd., and a small portion to the cement contractor, Halliburton.
Echoing several independent inquiries into the disaster, the ruling details a string of fateful decisions by BP that it concludes put money over safety.
“BP’s decision was primarily driven by a desire to save time and money, rather than ensuring that the well was secure,” Barbier wrote of a decision BP made to forgo a crucial test as the company rushed to complete its drilling and move the rig to another site.
In particular, Barbier said, the company’s decision to drill the last 100 feet of the well left it in “extremely fragile condition” and vulnerable to blowout.
“The court agrees that the decision was dangerous and further finds that it was motivated by profit,” he wrote.
The Justice Department called the ruling “a significant step.”
BP said the accusation of willful misconduct was “not supported by the evidence at trial. The law is clear that proving gross negligence is a very high bar that was not met in this case.” The company said it planned to appeal the ruling.
Culpability is crucial in determining how much BP will eventually have to pay for violating the Clean Water Act. If a company is found simply negligent in causing a spill, it could pay a maximum of $1,100 a barrel. “Gross negligence,” as Barbier found, could raise the penalty to $4,300 a barrel. Under federal law, 80% of the eventual penalty would go to restoration of the gulf. Barbier has yet to rule on exactly how much was spilled, a point of contention.
“The significance of today’s ruling is when you put it together with how much was spilled, it considerably increases the size of a possible fine,” said Martin Davies, director of Tulane University’s Maritime Law Center. “Gross negligence is an extreme departure from the care required to perform this type of work.”
The company has paid $28 billion in claims from those financially injured by the spill. It has set aside $3.5 billion to cover civil penalties related to the Clean Water Act, according to a July earnings report. In total, BP has taken a $43-billion charge to cover costs from the spill.
The company has been shaving assets for years, in large part to help pay for the spill. In October, BP announced it would sell $10 billion in assets by the end of 2015. That’s on top of $38 billion it had already shed after the spill.
Last year, BP sold its Carson refinery, the Arco brand and other assets for $2.5 billion.
The Deepwater Horizon disaster has weighed on BP’s financial results in recent years, but there are signs of a turnaround. In the second quarter, BP said its profit soared 65% from a year earlier to $3.37 billion.
Thursday’s ruling came as a surprise to the market, analysts said. BP shares plunged $2.82, or nearly 6%, to $44.89 a share.
“The gross-negligence ruling is about as negative as it could have been,” said Pavel Molchanov, an analyst with Raymond James.
He said that although he foresaw a “legal overhang” in the stock going forward, he didn’t anticipate more large hits.
The ruling sends a sharp signal to the oil industry, which has insisted that BP is an outlier, about the possible consequences from an offshore spill.
Said Carl Tobias, a law professor at the University of Richmond: “What the federal government is trying to do is to deter and punish anything this environmentally disastrous from happening again, so that companies will think twice, thrice, about what they do.”
Barbier must next rule on how much oil was actually spilled. The federal government says that BP’s Macondo well spilled nearly 5 million barrels of oil over 87 days until it was capped. BP contends that the amount was about 2.45 million barrels. Once the amount is established, Barbier would have to determine the penalties BP would pay, a process that will probably take years.
“The United States remains committed to ensuring that BP will be held fully accountable for its actions and that the maximum amount of money will be distributed to the states and communities hurt most by this tragedy,” said Associate U.S. Atty. Gen. Tony West.