With the ink barely dry on the record-breaking $4-billion check BP wrote to settle criminal charges stemming from its Gulf of Mexico oil spill disaster, the energy giant now faces a protracted court battle that could cost it billions more.
The civil trial scheduled to begin next week could expose BP to about $17 billion in fines for violating the Clean Water Act. If imposed, the fine would be the largest environmental penalty in U.S. history.
The first phase of the nonjury trial will focus on the cause of the April 20, 2010, explosion that killed 11 people and spewed an estimated 4 million barrels of oil into the gulf over 84 days.
Federal District Court Judge Carl Barbier in New Orleans will decide whether BP’s actions on the drilling rig were negligent — as has already been determined in the criminal case — or grossly negligent, which could force the company to pay significantly higher fines.
The second part of the trial, expected to begin in late summer, will attempt to determine how much oil was released. That difficult accounting will determine the size of the federal fine, which could be as little as $4.5 billion.
On Tuesday, an agreement was reached to deduct 810,000 barrels of oil from the government’s spill estimate because some oil from the crippled well was captured by BP before it could leak into the ocean.
Legal experts had expected a pretrial settlement as attorneys from the U.S. Department of Justice and BP have been working toward a deal. But this week the London-based company announced it was dissatisfied with the government’s offers and vowed to take the case to trial.
“Gross negligence is a very high bar that BP believes cannot be met in this case,” said Rupert Bondy, BP’s general counsel. “This was a tragic accident, resulting from multiple causes and involving multiple parties. We firmly believe we were not grossly negligent.”
Whether or not BP’s announcement amounts to a bargaining ploy, federal prosecutors pledge to be ready for a complicated trial that could stretch into next year.
“We intend to prove that BP was grossly negligent and that the company engaged in willful misconduct in causing this disastrous oil spill,” Justice Department spokesman Wyn Hornbuckle said in a statement.
Although the case could still be settled, the decision to go to trial carries risks for both sides, said David Uhlmann, former chief of the environmental crimes section at the Justice Department.
“The most difficult issue for the judge to decide is how much oil was spilled,” said Uhlmann, now a professor at the University of Michigan Law School. “It’s not like there was a meter on the well. No one knows to a degree of scientific certainty how much oil was spilled into the Gulf of Mexico.”
The oil flow rate and the degree of negligence are critical to assessing the civil penalties.
The company would be required to pay $1,100 for each spilled barrel under the Clean Water Act. But that fine would rise to $4,300 per barrel if BP were found to be grossly negligent.
Uhlmann said years of litigation would serve no one’s interest. “The government would like to get as much money going to Gulf Coast restoration efforts and restoring the Gulf Coast economy as fast as possible, and BP desperately wants to move on from this tragedy,” he said.
Even if the company reaches a settlement and averts a trial, BP’s tab for fines, cleanup costs and restoration efforts could climb to more than $50 billion, experts say.
BP’s profit fell nearly 80% in the fourth quarter in results released this week, reflecting the recent payouts related to the criminal charges. The company said that its net profit fell to $1.62 billion in the quarter ending on Dec. 31, down from $7.69 billion in the same period the year before.
Although the company has weathered the financial hits so far, there are substantial payouts in its future.
Some analysts believe BP has paid enough.
“Although BP has the money to meet any additional payments and penalties in connection with the oil spill, that does not mean that it will be the money train for federal, state and local governments,” said Fadel Gheit, an energy analyst with Oppenheimer & Co.
To date, the oil giant has racked up more than $24 billion in spill-related expenses.
Despite expert estimates that put the costs higher, BP figures it will spend about $42 billion to resolve its total liability for the disaster in the deep waters 50 miles off the coast of Louisiana. At the height of the spill, oil coated nearly 1,100 miles of shoreline.
The recent $4-billion criminal settlement will be split five ways: $2.4 billion to the National Fish and Wildlife Federation for ongoing restoration efforts, $1.15 billion to the Oil Spill Liability Trust Fund, $350 million to the National Academy of Sciences for research into oil spill prevention and response, $100 million to the North American Wetlands Conservation Fund and $6 million to the federal Treasury.
The more than 100,000 private claims against BP and others have been consolidated into one group, with compensation to be supervised by a district court in New Orleans. The company estimates the payout on those claims will total nearly $8 billion.
For those who opted out of the class-action settlement, there is a separate claims process that has paid out nearly $400 million so far.
With the ink barely dry on therecord-breaking $4-billion check BP wrote to settle criminal charges stemming from its Gulf of Mexico oil spill disaster,, and the energy giant now faces a protracted court battle that could cost it billions more.