BP royalty payments in gulf spill face scrutiny
As oil gushed from its Macondo well in the Gulf of Mexico last year, BP vowed to contribute any money from the sale of recovered oil to a little-known environmental group, the National Fish and Wildlife Foundation.
The company eventually sent $22 million to the foundation to help sea turtles and migrating birds. It also paid $5.2 million in royalties to the federal government on oil that was collected and shipped to refineries.
But now the Interior Department is examining whether the company’s royalty payments were enough, based on the market price of oil during the spill and the amount of oil that BP recovered.
The presidential commission investigating the spill has reported that about 980,000 barrels of oil were taken directly from the wellhead or skimmed from the ocean surface during the disaster. Based on the average market price during the spill, the oil could have generated revenue of as much as $71 million — meaning that both the royalties and charitable contributions could have been millions of dollars higher.
The Interior Department office responsible for collecting royalties on the oil declined to release the production volumes and sales prices that BP used to calculate its royalties, but said it was reviewing the issue.
“The Office of Natural Resources Revenue is currently conducting an audit of all production reports and royalty payments made by BP and the other owners in the Macondo well to ensure the reports and payments are accurate,” said Kendra Barkoff, the Interior Department’s press secretary. “The audit includes an analysis of whether BP and its partners valued the recovered oil in accordance with federal regulations and paid on all volumes recovered.”
BP spokesman Daren Beaudo said the company had lived up to its pledge regarding the donations and royalty payments.
Beaudo said the company was not able to sell all of the oil that was recovered from the well, either because it was fouled or because large amounts were burned until a recovery system could be put in place. He also said the price obtained for the crude varied, though the company would not disclose the prices or who refined the crude.
Any dispute about royalties would be a minor issue compared with BP’s overall liabilities in the spill. The company established a $20-billion fund during the spill to pay for the cleanup and economic losses.
Even if the Interior Department audit indicates that BP paid the correct royalty amount on the recovered oil, it could be liable for significantly more. The company remains the target of multiple federal investigations, including a joint inquiry by the Coast Guard and its Bureau of Ocean Energy Management, Regulation and Enforcement. The Justice Department is also conducting a criminal investigation.
If those investigations determine that BP acted with negligence or in violation of government regulations, the Interior Department can collect royalties from BP on all of the estimated 4.9 million barrels of oil that escaped from the well. Most of that crude could not be recovered.
If all of that oil were valued at the average market price last summer, it would be worth $356 million, and BP and its partners would owe royalties of $67 million to the federal government.
The Office of Natural Resources Revenue said it would not disclose the production and pricing reports submitted by BP because they were considered confidential and proprietary. The Interior Department’s stance has renewed criticism of oil industry accounting practices and the government policies that allow them to be kept confidential.
“It has been impossible to hold the extractive industries accountable,” said Danielle Brian, executive director of the Project on Government Oversight, which has extensively investigated the Interior Department’s handling of royalties. “This is the people’s oil. It is on public land. The land is only being leased to the oil companies.”
Brian said there was no question that the Interior Department should demand royalties on all of the lost oil, because it represented a loss of public assets. She also wrote a letter last week to President Obama, raising a series of concerns about estimates made last summer of the amount of oil that BP claimed was collected.
BP’s oil accounting has been controversial from the first days of the well blowout last April. The company initially said it didn’t believe any oil was escaping from the well after the Deepwater Horizon rig burned and sank. When oil slicks began appearing, BP estimated just 1,000 barrels a day were coming out of the well.
Ultimately, an interagency panel of federal and academic scientists estimated as much as 60,000 barrels a day were flowing out of the well.
About 833,000 barrels were captured from devices attached to the severed wellhead and an additional 147,000 barrels were skimmed from the ocean surface. The weekly spot market price of crude in the U.S. during the time of the spill from April 20 to July 15 averaged $72.85.
If BP had sold all of the 980,000 barrels recovered from the Macondo well, its 65% share of the resulting $71 million in revenue would have been $46 million. The BP royalty to the government would have been $8.6 million, rather than the $5.2 million it paid. (Anadarko paid $2 million in royalties and Moex $790,000, according to the Office of Natural Resources Revenue.) In a statement Thursday, Beaudo said BP’s actual sales volume was 590,000 barrels.
Anadarko spokesman John Christiansen said the company did not believe it was entitled to any profits from the spill and said it would donate any revenue to gulf communities. Anadarko said it returned a check for about $10.6 million to BP, but it was not immediately clear what BP did with that money. The two companies have substantially larger disputes to resolve: Anadarko has refused BP’s demand for $2.6 billion to pay for a share of cleanup costs, citing what it called in a statement last June “BP’s reckless decisions and actions.”
Meanwhile, the $22 million given to the environmental foundation, a congressionally chartered nonprofit, was used to bolster populations of sea turtles and migratory birds outside the spill zone, said Thomas Kelsch, the group’s director of conservation programs.
The group improved habitat for sea turtles along the Florida coast, helping keep alive about 30,000 hatchlings, Kelsch said.
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