Spill may cost BP its licence, wells

WASHINGTON: BP may lose control of its US oil and natural gas wells and be barred from doing business with the federal government as punishment for the worst oil spill in US history, industry and regulatory analysts said.

President Barack Obama and lawmakers are debating penalties that would cripple the company’s ability to do business in the US as public outrage intensifies. In addition to BP’s culpability in the Gulf of Mexico spill, a 2005 explosion at BP’s Texas City refinery that killed 15 workers and a 2006 pipeline leak that dumped 200,000 gallons of crude at Prudhoe Bay, Alaska, will figure in the debate, said Michael Wara, associate professor of environmental law at Stanford University in Palo Alto, California.

“The government weighs whether there is a pattern and practice,” Wara said. “They’ll consider whether BP runs these incredibly complicated systems, where accidents can and sometimes do happen, or whether the company has a culture that disfavours safety and environmental compliance.”

The US may revoke BP’s status as operator of producing wells in the Gulf of Mexico, such as Thunder Horse, or of leases at Prudhoe Bay, said David Pursell, MD at Tudor Pickering Holt, a Houston investment bank. Separately, Congress is considering measures to bar BP from contracts with the Department of Defense and Environmental Protection Agency. Lawmakers including house speaker Nancy Pelosi are demanding that BP defer the payment of any dividends until fishermen and others are compensated for losses from the spill. BP should set up an escrow account to cover claims, Obama aide David Axelrod said Sunday. The spill’s cost may reach $40 billion, Standard Chartered Bank
estimated last week.

BP’s board is meeting Monday. It’s unlikely to make any announcements until chairman Carl-Henric Svanberg meets with Obama on June 16 in response to a request from the administration, according to two people familiar with the matter. Chief executive officer Tony Hayward is scheduled to appear before the House Energy and Commerce oversight panel the following day.

The administration has the power to force BP out as operator of existing leases on federal lands and offshore tracts. The operator, typically the partner with a majority interest, is designated before drilling begins. The Interior Department tracks each operator’s performance and may “disapprove or revoke your designation as operator” based on accidents, pollution events or other cases of noncompliance, according to federal regulations.

“We think there’s a good chance the government not only doesn’t allow BP to operate going forward, but could rescind operating control,” Pursell, an oil specialist, said in an interview. “It’s a way to keep BP alive and a way for the government to say we’ve really done something to penalise BP.”

Such a move would force BP to sell part or all of its interest in some of its most profitable oil and gas fields, said Michael McKenna, president of MWR Strategies, a consulting firm in Washington. Other partners in a lease are unlikely to take on the risk of being the operator without also taking the lion’s share of profits, McKenna said. Even if BP breaks even on the sale of its stake, it would lose the profits from future oil production.

“It’s exceedingly possible and exceedingly unwise,” McKenna said. “You engage in the economic deterioration of a company that’s already under stress.”

“The BP Deepwater Horizon oil spill raises several fundamental questions about safety and about industry’s ability to respond to spills,” Kendra Barkoff, a spokeswoman for the Interior Department, said in an e-mail. She declined to say if the administration may revoke BP’s operator status. BP also faces a fine of as much as $4,300 for each barrel of oil leaked under the 1990 Oil Pollution Act, said David Pettit, a senior attorney for the Natural Resources Defense Council in Los Angeles. That may mean a bill of as much as $8.6 billion based on more than 50 days of oil spilling at a rate of up to 40,000 barrels per day.

David Nicholas, a BP spokesman, declined to comment on possible US sanctions. “It’s not the sort of thing that we would react to,” Nicholas said in an interview. “Clearly throughout the response to this event we have been working closely with the administration.”