BP pleads guilty to criminal charges, will pay $4.5 billion in penalties for Deepwater Horizon oil spill

Deepwater Horizon. SOURCE: U.S. Coast Guard

BP will pay $4 billion to settle criminal charges stemming from the 2010 Deepwater Horizon explosion that killed 11 workers and caused a massive oil spill that severely damaged the Gulf coast, resulting in billions of losses to businesses in Louisiana, Alabama, Mississippi, Florida, and Texas.

BP will also pay $525 million to the Security Exchange Commission to settle claims that the company had lied to investors about the true extent of the oil spill. 

“All of us at BP deeply regret the tragic loss of life caused by the Deepwater Horizon accident as well as the impact of the spill on the Gulf coast region,” said Bob Dudley, BP’s Group Chief Executive. “From the outset, we stepped up by responding to the spill, paying legitimate claims and funding restoration efforts in the Gulf. We apologize for our role in the accident, and as today’s resolution with the U.S. government further reflects, we have accepted responsibility for our actions.”

On Thursday, BP entered guilty pleas to 14 criminal counts, including 11 counts of manslaughter, 1 count of obstruction of Congress, 1 count of violating the Clean Water Act, and 1 count of violating the Migratory Bird Treaty Act. The company has agreed to pay $4 billion – including $1.256 billion in criminal fines – and to be placed on 5 years of probation to settle the charges.

“This marks both the single largest criminal fine – more than $1.25 billion – and the single largest total criminal resolution – $4 billion – in the history of the United States,” said Attorney General Eric Holder. “I hope that this sends a clear message to those who would engage in this kind of reckless and wanton conduct that there will be a significant penalty to pay and that individuals in companies that are engaged in these kinds of activities will themselves be held responsible.”

Deepwater Horizon. SOURCE: U.S. Coast Guard


The Justice Department also unsealed criminal indictments against three BP employees involved in the Deepwater Horizon disaster. The three individuals indicted were: the Deepwater well site leaders Robert Kaluza and Donald Vidrine, who were charged with manslaughter, and David Rainey, BP’s former Vice President of Exploration, who was charged with “hiding information from Congress and allegedly lying to law enforcement officials.”

“Perhaps the greatest tragedy is that the deaths of the 11 men onboard the Deepwater Horizon could have been avoided. The explosion of the rig was a disaster that resulted from BP’s culture of privileging profit over prudence,” said Assistant Attorney General Lanny Breuer, who heads the Justice Department’s criminal division. “As the oil spill continued, BP made a tragic situation worse:  It began misleading Congress and the American people about how much oil was pouring out of the Macondo well.”

In addition, BP has agreed to pay $525 million in civil penalty to settle “charges that it mislead investors about the rate of oil flowing from the Gulf of Mexico during the Deepwater Horizon disaster,” according to the Securities and Exchange Commission.

Robert Khuzami, SEC’s Director of Enforcement, said that BP misrepresented the extent of the oil spill and purposely hid information from the public and Congress that indicated the oil spill rate was about 10 times higher than what BP claimed.

At the time, BP repeatedly claimed that only 5,000 barrels of oil per day were being spilled into the Gulf of Mexico. However, the Flow Rate Technical Group (and even the company’s internal data) found that the actual spill rate was between 35,000 to 60,000 barrels per day. It took 3 months for Macondo well to be capped.

“By hiding the severity of the spill, BP caused another type of harm that is the SEC’s focus: Harm to its own shareholder, to the investing public, and the financial markets – all of which are entitled to transparent, accurate, and complete information,” said Khuzami. “BP chose to mislead the public. That is not what we expect from public companies and their management, and in fact, it is exactly in times of crisis that the need for accurate information is most acute.”

Holder noted that criminal investigations are continuing against individuals involved in the Deepwater Horizon disaster and that the criminal settlement won’t affect the Justice Department’s civil lawsuit against BP. The civil suit is expected to go to trial in February.

Key terms of the plea agreement

  • BP will have to pay $4 billion total, including $1.256 billion in criminal fines
  • Of the $1.256 billion in criminal fines, $1.150 billion will be placed in the Oil Spill Liability Trust Fund and about $100 million will be allocated to the North American Wetlands Conservation Fund.
  • $2.394 billion will go to the National Fish and Wildlife Foundation, which will use the money to “remedy harm of the Gulf Coast caused by the Macondo oil spill.” The funds will be allocated as such:
  • Alabama: 28%
  • Florida: 28%
  • Mississippi: 28%
  • Texas: 16%
  • Louisiana will receive half of the payments to “create or restore barrier islands off the coast of Louisiana” or river diversion projects on the Mississippi and Atchafalaya rivers.
  • $350 million will go to the National Academy of Sciences to improve oil spill prevention and responses in the Gulf of Mexico.
  • BP may not deduct criminal penalty from its U.S. taxes.
  • BP will be placed on 5 years of probation.
  • The criminal settlement will not have any effect on civil claims against BP and won’t preclude the Justice Department from pursuing criminal charges against individuals.
  • BP must cooperate with the Justice Department’s criminal investigations.
  • BP must retain a process safety monitor to improve BP’s safety and risk management procedures to prevent accidents; an ethics monitor to improve the company’s code of conduct and prevent “future criminal and ethical violations with respect to dealings with regulatory and enforcement authorities; and an auditor to ensure BP’s compliance to the criminal settlement.
  • BP must obtain third-party verifications of blowout preventers and conduct annual training in oil spill response.
  • BP must continue its commitment to fund the Gulf of Mexico Research Initiative.

Key admissions by BP

  • BP admitted that the company’s well site leaders failed to alert engineers that the “negative pressure test performed on the Macondo well on April 20, 2010 provided multiple indications that the well bore was not secure”. Instead, the well site leaders, Robert Kaluza and Donald Vidrine, “deemed the negative pressure test a success”, which allowed the BP and Transocean rig crew to go ahead with “removing the drilling mud from the Macondo well until it became so underbalanced that natural gas and oil migrated through the well, up through the riser, and onto the rig floor.” Their actions caused multiple explosions, killing 11 men, and the fire burned for two days before the Deepwater Horizon rig sunk on April 22, 2010. “BP’s negligent conduct, among others, was a proximate cause of the deaths of 11 men and pollution from the Macondo well blowout.”
  • The oil spill caused by the Macondo well explosion severely damaged the Gulf Coast and killed “migratory birds, including Brown Pelicans, Laughing Gulls, Northern Gannets, and other protected species.” Thus, BP has admitted to violating the Clean Water Act and the Migratory Bird Treaty Act.
  • BP also admitted that the company’s former Vice President David Rainey had lied to Congress about the extent of the oil spill by “cherry pick[ing]” data to present to the House Committee on Energy and Commerce. Rainey testified that about 5,000 barrels of oil per day were being spilled but “withheld information and documents…prepared by BP engineers that showed flow rates far higher than 5,000 BOPD, including as high as 96,000 BOPD.”

Names of the 11 men killed in the Deepwater Horizon explosion 

Jason Christopher Anderson

Aaron Dale Burkeen

Donald Neal Clark

Stephen Ray Curtis

Gordon Lewis Jones

Roy Wyatt Kemp

Karl Dale Kleppinger Jr.

Keith Blair Manuel

Dewey Allen Revette

Shane Michael Roshto

Adam Taylor Weise

 

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