The Politics of the BP Settlement Terms

There has been a rush of developments in the BP settlement talks in the wake of the Gulf oil spill. To make sense of seemingly odd behaviors on the part of the players, it helps to have a scorecard. So here goes.

BP

BP wants to remain as apolitical as it can, given that elections can change the political landscape they are going to have to deal with going forward. So despite having a hammerlock on the political shenanigans of the Obama Administration, they will tend to go along to get along. The first confirmation of that is that the hearing to judge the fairness of their settlement offer has been punted until after the election, to Thursday November 8, 2012. They have also gone along with making court filings on the proposed sequence of future hearings secret.

BP has already written off the $20 billion settlement fund, so if they can limit their total exposure to less than that and get dismissed from the case, they will call it a wash and get on with their lives. If they can settle with the government for the $3.5 billion they have booked as the projected environmental fines, that combined with the other settlement agreements will add up to about $20 billion. They will be able to write off a lot of that against their corporate taxes, and they have negotiated large dollar settlements with their partners in the lease and some contractors, such as Cameron, the manufacturer of the blowout preventer. All that will offset a very large chunk of the $20 billion dollar fund. They can see the light at the end of the tunnel.

One really big risk they have faced all along is being found grossly (criminally) negligent. The civil fine for an oil spill is $1,000 per barrel. At a downwardly revised total flow of 3.2 million barrels (not the government's inflated 4.9 million barrels) that works out to $3.5 billion, which is what they have already set aside. BP would love to offset some of their costs to their drilling contractor Transocean and their cementing contractor Halliburton, but they signed indemnity agreements and cannot abrogate those agreements except if the contractors were grossly negligent, which would expose BP to the $4,300 per barrel fine for gross negligence.  So BP wants to settle for civil negligence and leave the contractors out to dry. BP has been criticized for their drilling risk management, but their legal risk management is making Obama's head spin!

You may have noticed that within the settlement, BP has assigned their claims against Transocean and Halliburton to the Plaintiffs' Steering Committee. That must seem very odd, BP and the plaintiffs ganging up on Halliburton. But arguably BP has a claim for gross negligence against Transocean for misleading them with the "bladder effect" theory and Halliburton for defective nitrified cement. The prospects are inviting enough that the trial lawyers (Obama allies) will let BP enter a plea deal to get a chance at Transocean and Halliburton later. Transocean and Halliburton seem to sense they are being set up to take the fall.

The Politicians

The Obama Administration knows it has a huge problem. Confronted with a crisis, they just could not let it go to waste, and meddled in the process rather than leaving it to the career professionals. So the whole source control effort was subordinated to the politics of the White House.  How else would it be that a political operative, former Czarina of Energy and Climate Change Policy Carol Browner, had operatives writing the illegal drilling moratorium in the wee hours of May 27, 2010, right in the middle of BP's top kill operation.  And simultaneous with that, those subsea operations were blacked out on TV. Even National Incident Commander Thad Allen complained about "political nullification" of the National Contingency Plan structure. As someone who did not go through the Senate confirmation process, Browner was definitely political. Hence the stonewalling by the administration of House subpoenas. Political meddling is currently umpopular with the electorate.

The President's Oil Spill Committee co-chairmen and House Democrats are trying to preemptively spin events in the executive branch's favor while the Republican congressmen fight back. The Republicans should not expect any help in exposing the political shenanigans of the Obama Administration in the Deepwater Horizon affair, any more than they'll get over Fast & Furious. But there is yet another smoking gun to join their arsenal.

There has been a rush of developments in the BP settlement talks in the wake of the Gulf oil spill. To make sense of seemingly odd behaviors on the part of the players, it helps to have a scorecard. So here goes.

BP

BP wants to remain as apolitical as it can, given that elections can change the political landscape they are going to have to deal with going forward. So despite having a hammerlock on the political shenanigans of the Obama Administration, they will tend to go along to get along. The first confirmation of that is that the hearing to judge the fairness of their settlement offer has been punted until after the election, to Thursday November 8, 2012. They have also gone along with making court filings on the proposed sequence of future hearings secret.

BP has already written off the $20 billion settlement fund, so if they can limit their total exposure to less than that and get dismissed from the case, they will call it a wash and get on with their lives. If they can settle with the government for the $3.5 billion they have booked as the projected environmental fines, that combined with the other settlement agreements will add up to about $20 billion. They will be able to write off a lot of that against their corporate taxes, and they have negotiated large dollar settlements with their partners in the lease and some contractors, such as Cameron, the manufacturer of the blowout preventer. All that will offset a very large chunk of the $20 billion dollar fund. They can see the light at the end of the tunnel.

One really big risk they have faced all along is being found grossly (criminally) negligent. The civil fine for an oil spill is $1,000 per barrel. At a downwardly revised total flow of 3.2 million barrels (not the government's inflated 4.9 million barrels) that works out to $3.5 billion, which is what they have already set aside. BP would love to offset some of their costs to their drilling contractor Transocean and their cementing contractor Halliburton, but they signed indemnity agreements and cannot abrogate those agreements except if the contractors were grossly negligent, which would expose BP to the $4,300 per barrel fine for gross negligence.  So BP wants to settle for civil negligence and leave the contractors out to dry. BP has been criticized for their drilling risk management, but their legal risk management is making Obama's head spin!

You may have noticed that within the settlement, BP has assigned their claims against Transocean and Halliburton to the Plaintiffs' Steering Committee. That must seem very odd, BP and the plaintiffs ganging up on Halliburton. But arguably BP has a claim for gross negligence against Transocean for misleading them with the "bladder effect" theory and Halliburton for defective nitrified cement. The prospects are inviting enough that the trial lawyers (Obama allies) will let BP enter a plea deal to get a chance at Transocean and Halliburton later. Transocean and Halliburton seem to sense they are being set up to take the fall.

The Politicians

The Obama Administration knows it has a huge problem. Confronted with a crisis, they just could not let it go to waste, and meddled in the process rather than leaving it to the career professionals. So the whole source control effort was subordinated to the politics of the White House.  How else would it be that a political operative, former Czarina of Energy and Climate Change Policy Carol Browner, had operatives writing the illegal drilling moratorium in the wee hours of May 27, 2010, right in the middle of BP's top kill operation.  And simultaneous with that, those subsea operations were blacked out on TV. Even National Incident Commander Thad Allen complained about "political nullification" of the National Contingency Plan structure. As someone who did not go through the Senate confirmation process, Browner was definitely political. Hence the stonewalling by the administration of House subpoenas. Political meddling is currently umpopular with the electorate.

The President's Oil Spill Committee co-chairmen and House Democrats are trying to preemptively spin events in the executive branch's favor while the Republican congressmen fight back. The Republicans should not expect any help in exposing the political shenanigans of the Obama Administration in the Deepwater Horizon affair, any more than they'll get over Fast & Furious. But there is yet another smoking gun to join their arsenal.