'Someone must pay the price'
The court battle over the world's biggest oil spill begins on Monday and BP is in the dock
Saturday 25 February 2012
"There's money, and then there's principle," says Dean Blanchard, a hard-bitten Louisiana shrimp wholesaler, explaining why he has refused to take an easy settlement from BP over the gigantic 2010 oil spill that upended the local economy.
"BP's got a lot of money – but they've got very little principle."
Mr Blanchard dominated the local shrimp fishing business, which hauled in some of Southern cooking's most famous seafood, but when the oil came, the fishing stopped and his docks became home to a vast crew of workers attempting to clean up the mess.
Two years later, the industry is beginning to return to normal, but the fury of local residents remains. For all the expensive ads being run by BP, showing tourism in the region in full swing again, a mention of the British oil giant is still more likely to make Louisianans spit than smile.
Now the company is going to have to relive those devastating 87 days when oil spewed uncontrolled into the Gulf of Mexico, after an explosion on the Deepwater Horizon rig killed 11 people.
Mr Blanchard is one of almost 120,000 people seeking redress at a complex trial that finally gets under way in New Orleans on Monday.
"Let's take it to court, let the truth come out, and show what BP done to the folks down here," he says. "I worked 30 years to get to this point, and I was finally getting to reap the profits, and then a company that can't run their business comes and destroys mine."
Plaintiffs in the case run from shrimpers and oystermen who were unable to take to the seas while the spill was cleaned up, all through the food chain, from processors to the restaurants. There are people who suffered injuries in the 2010 explosion, and those who claim poor health from their exposure to dispersants. And there are hotel owners, travel agents and property developers who claim economic losses.
And this is not all on BP. The first phase of the trial will be dedicated to deciding how much blame and what proportion of financial liability might also fall on BP's partners in the doomed drilling project. The oil company has always claimed that the Deepwater Horizon explosion was the result of a long chain of accidents and mistakes, and that some of the responsibility falls on Transocean, which operated the rig on a day-to-day basis, and on Halliburton, whose cement job on a crucial piece of well equipment called a blow-out preventer has been implicated in the explosion.
The trial consolidates all the lawsuits between these giants of the oil industry, as well as the claims of local residents, businesses and state governments, plus the civil proceedings brought against the companies by the US federal government, which wants big penalties under the Clean Water Act. So far, no criminal charges have been laid against BP or its employees, but if they are, they will be tried later and elsewhere.
The most perilous outcome of the current trial for BP would be a finding that it specifically was grossly negligent in its management of the Deepwater Horizon project, something the federal government's lawyers seem determined to argue. According to sealed court documents shown to some journalists, BP knowingly took on additional risks in the construction of the well, botched safety testing and was "cavalier" in its handling of safety decisions, the government will claim.
To date, BP has taken more than $40bn (£25.21bn) of accounting charges to cover the costs of the litigation and pay for the clean-up of the Gulf, including a $20bn claims fund for local businesses, part of which it may get back. However, it has put aside only $3.5bn for expected fines under the Clean Water Act. The ultimate cost could be five times more than that if the company is found to have been grossly negligent, and such a finding could also unleash punitive damages payments to those thousands of affected businesses.
Moody's, the credit rating agency, said BP could withstand $40bn in costs and still keep its current rating, but it may take years for the trial and subsequent appeals to play out and for a final bill to be known.
"Considerable uncertainty remains regarding potential additional calls on BP's cash flow ahead of the proceedings," Francois Lauras, an analyst at Moody's, warned.
BP investors had hoped for a pre-trial settlement, at least between companies involved in the rig's operation. If BP, Halliburton and Transocean settled their differences, they could present a united front against the federal government's claims of gross negligence, Peter Hutton, an analyst at RBC Capital Markets, said.
"If they go in with a consistent story, the need to go into everything in minute detail is diminished."
However, BP has been telling equity analysts that it would not pay any price to avoid a trial, and executives in closed-door meetings specifically squashed talk of a $65bn settlement.
Although there could still be developments over the weekend, it appeared last night that settlement talks had finally broken down.
For all the questions that the trial is slated to answer, it remains an open question whether the people of the Gulf region will feel this is justice.
Mr Blanchard, for one, seems unlikely to dim his rage. "Somebody from the government needs to go to jail. Somebody from the Coast Guard needs to go to jail. Several people from BP need to go to jail. I want to know that the same thing cannot happen again, and I won't be able to say that until somebody pays the price," he said.
The Key Issues
Phase One: The Incident
Start date: Monday, 27 February 2012
At issue: Which party or parties is responsible for the explosion, for the fire and the sinking of the Deepwater Horizon rig? What percentage of fault is attributable to each of the owners and contractors? Were any of the parties grossly negligent? Was there wilful misconduct? How does the wording of contractors' contracts affect who shoulders the financial burden? Can Transocean limit its liability to just the salvage value of the rig?
Phase Two: Source Control
Start date: Summer 2012 (estimated)
At issue: What was the total amount of oil that escaped from the Macondo well, versus from the rig itself? Did the parties take reasonable steps to prepare for a spill? Should it really have taken until July to cap the well, and until September to cement it shut?
Phase Three: Containment
Start date: Unknown
At issue: Did the respective parties perform properly in their efforts to contain, disperse and clean up the oil that escaped? Was the use of chemical dispersants illegal, and did it cause health problems? Were controlled burnings, oil skimming and the booms used correctly? How wide was the area affected by the spill?
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