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BP faces fines of up to $13.7 billion for the 2010 Deepwater Horizon disaster in the Gulf of Mexico, but argues that it can’t afford to pay one-fifth of the potential total without being forced to financially dismantle its US oil subsidiary, which helps support the economy of the Gulf Coast.
The same would be true even if the price of oil somehow doubled back to $100 per barrel this year, the British oil giant said in court papers filed on March 27.
BP published this conclusion as federal prosecutors and defense lawyers were completing their arguments for and against the defendants in the final chapter of the civil trial in US District Court in New Orleans.
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Already, US District Judge Carl Barbier has found BP and Anadarko Petroleum Corp. responsible for the explosion at the Deepwater Horizon oil rig off the Louisiana coast on April 20, 2010, that killed 11 workers, and the subsequent blow-out of BP’s Macondo well that emitted more than 3 million barrels of oil into the Gulf over the following three months.
Barbier could impose the BP fine once all the parties file their final briefs later in April, and could levy a fine of $1 billion against Anadarko, a minority owner of the Macondo well. BP has contended the fines should be much lower, citing the great effort and many millions of dollars it spent to prevent and correct environmental damage caused by the spill.
Now BP is stressing that its US subsidiary, BP Exploration & Production (BPXP) in Houston, is solely responsible for the accident, not the London-based parent company. It says BPXP simply hasn’t got the capital necessary pay the fine because its assets shrank to $5 billion in December due to the 9-month-old plunge in oil prices.
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BP says BPXP would have to cut some of its 2,300 jobs and its $5 billion in yearly spending. BP also would have to sell off up to $3 billion in BPXP's assets, which would essentially dismember the company.
Prosecutors countered that BPXP could pay the fines by borrowing, by using future cash flows tied to oil reserves or by selling assets. They contended that BPXP had $25 billion in assets a year ago, along with leases and reserves valued at up to $18 billion in new production after 2015. The prosecutors also said the company has set aside $3.5 billion to pay fines under the Clean Water Act.
BP contends that this argument is based entirely on past practice and doesn’t reflect the company’s current resources since the drop in oil prices.
The question is whether it’s realistic to expect BP to dismantle its US subsidiary if Barbier insists on payment of the fines in full. The answer is probably no, according to Blaine LeCesne, a law professor at New Orleans’ Loyola University.
“I think that’s highly unlikely because the value of production in the Gulf of Mexico is too important to BP’s overall interests to allow the subsidiary to be financially vulnerable," Le Cesne told the Houston Chronicle.
Besides, LeCesne said, the judge probably would allow BP to pay the fine in affordable installments. “It stretches credulity to believe that a $13 billion fine could bring a company the size of BP down, especially if it is absorbed over time,” he said. “It would hardly be a speed bump in its operations.”
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com