BP 2013 Annual Report Download - page 270

Other legal proceedings
FERC and CFTC matters
The US Federal Energy Regulatory Commission (FERC) and the
US Commodity Futures Trading Commission (CFTC) have been
investigating several BP entities regarding trading in the next-day natural
gas market at Houston Ship Channel during September, October and
November 2008. The FERC Office of Enforcement staff notified BP on
12 November 2010 of their preliminary conclusions relating to alleged
market manipulation in violation of 18 C.F.R. Sec. 1c.1. On 30 November
2010, CFTC Enforcement staff also provided BP with a notice of intent to
recommend charges based on the same conduct alleging that BP
engaged in attempted market manipulation in violation of Section 6(c),
6(d), and 9(a)(2) of the Commodity Exchange Act. On 23 December 2010,
BP submitted responses to the FERC and CFTC November 2010 notices
providing a detailed response that it did not engage in any inappropriate
or unlawful activity. On 28 July 2011, FERC staff issued a Notice of
Alleged Violations stating that it had preliminarily determined that several
BP entities fraudulently traded physical natural gas in the Houston Ship
Channel and Katy markets and trading points to increase the value of
their financial swing spread positions. On 5 August 2013, the FERC
issued an Order to Show Cause and Notice of Proposed Penalty directing
BP to respond to a FERC Enforcement Staff report, which FERC issued
on the same day, alleging that BP manipulated the next-day, fixed price
gas market at Houston Ship Channel from mid-September 2008 to
30 November 2008. The FERC Enforcement Staff report proposes a civil
penalty of $28 million and the surrender of $800,000 of alleged profits.
BP filed its answer on 4 October 2013 denying the allegations and
moving for dismissal.
CSB matters
On 23 March 2005, an explosion and fire occurred at the Texas City
refinery. Fifteen workers died in the incident and many others were
injured. BP Products North America, Inc. (BP Products) has resolved all
civil injury claims and all civil and criminal governmental claims arising
from the March 2005 incident. In March 2007, the US Chemical Safety
and Hazard Investigation Board (CSB) issued a report on the incident. The
report contained recommendations to the Texas City refinery and to the
board of directors of BP. To date, the CSB has accepted that the majority
of BP’s responses to its recommendations have been satisfactorily
addressed. BP and the CSB are continuing to discuss the remaining open
recommendations with the objective of the CSB agreeing to accept these
as satisfactorily addressed as well.
OSHA matters
On 29 October 2009, the US Occupational Safety and Health
Administration (OSHA) issued citations to the Texas City refinery related
to the Process Safety Management (PSM) Standard. On 12 July 2012,
OSHA and BP resolved 409 of the 439 citations. The agreement required
that BP pay a civil penalty of $13,027,000 and that BP abate the alleged
violations by 31 December 2012. BP completed these requirements and
the agreement has terminated. The settlement excluded 30 citations for
which BP and OSHA could not reach agreement. However, the parties
agreed that BP’s penalty liability will not exceed $1 million if those
citations are resolved through litigation. On 4 March 2014, the parties
reached agreement in relation to the remaining Texas City citations. The
agreement, which is subject to approval by an Administrative Law Judge
from the OSH Review Commission, links the outcome of the remaining
Texas City citations to the ultimate outcome of the remaining Toledo
citations (see below). If the 31 July 2013 decision of the Administrative
Law Judge in relation to the remaining Toledo citations is ultimately
upheld, OSHA has agreed to dismiss the remaining Texas City citations.
If the 31 July 2013 decision is ultimately overturned, BP has agreed to
pay a penalty not exceeding $1 million to resolve the remaining Texas
City citations.
On 8 March 2010, OSHA issued 65 citations to BP Products and BP-
Husky for alleged violations of the PSM Standard at the Toledo refinery,
with penalties of approximately $3 million. These citations resulted from
an inspection conducted pursuant to OSHA’s Petroleum Refinery
Process Safety Management National Emphasis Program. Both BP
Products and BP-Husky contested the citations. The parties resolved
23 citations in a pre-trial settlement for an aggregate amount of $45,000.
A trial of the remaining 42 citations was completed in June 2012 before
an Administrative Law Judge from the OSH Review Commission. The
Administrative Law Judge rendered her decision on 31 July 2013. Of the
42 remaining citations, OSHA voluntarily dismissed one of them and the
judge vacated 36 additional citations. The remaining five citations were
downgraded and assessed an aggregate penalty of $35,000. In addition,
the judge accepted the parties’ pre-trial settlement of the 23 citations. As
a result of the settlement and the judge’s decision, the total penalty in
respect of the citations was reduced from the original amount of
approximately $3 million to $80,000. The Review Commission has
granted OSHA’s petition for review with briefing scheduled to be
completed in the first half of 2014. The Review Commission is not
expected to issue its decision until 2015.
Texas City flaring event
A flaring event occurred at the Texas City refinery in April and May 2010.
This flaring event is the subject of civil lawsuit claims for personal injury
and, in some cases, property damage by roughly 50,000 individuals.
These lawsuit claims have been consolidated in a Texas multi-district
litigation proceeding in Galveston, Texas. The first trial in the matter
began in September 2013 and was completed in October 2013. Of the
six plaintiffs initially scheduled for trial, two filed nonsuits before trial, the
claims of one plaintiff were dismissed by the court on directed verdict,
and the jury awarded no damages to the remaining three plaintiffs. The
second trial in the matter is scheduled to begin on 15 September 2014. In
addition, this flaring event and other refinery emissions from December
2008 through to 2010 were the subject of a purported class action, on
behalf of some local residential property owners, filed in US federal
district court in Galveston. The court denied the plaintiffs’ class
certification motion on 2 October 2013, and the plaintiffs dismissed their
complaint on 4 December 2013. The flares involved in this event are also
the subject of a federal government enforcement action. BP retained
these liabilities when it sold the Texas City refinery.
Prudhoe Bay leak
In March and August 2006, oil leaked from oil transit pipelines operated
by BP Exploration (Alaska) Inc. (BPXA) at the Prudhoe Bay unit on the
North Slope of Alaska. On 12 May 2008, a BP p.l.c. shareholder filed a
consolidated complaint alleging violations of federal securities law on
behalf of a putative class of BP p.l.c. shareholders against BP p.l.c.,
BPXA, BP America Inc., and four officers of the companies, based on
alleged misrepresentations concerning the integrity of the Prudhoe Bay
pipeline before its shutdown on 6 August 2006. On 8 February 2010, the
US Court of Appeals for the Ninth Circuit (the Ninth Circuit) accepted
BP’s appeal from a decision of the lower court granting in part and
denying in part BP’s motion to dismiss the lawsuit. On 29 June 2011, the
Ninth Circuit ruled in BP’s favour that the filing of a trust-related
agreement with the SEC containing contractual obligations on the part of
BP was not a misrepresentation which violated federal securities laws.
The BP p.l.c. shareholder filed an amended complaint, in response to
which BP filed a new motion to dismiss, which was granted by the trial
court on 14 March 2012. The plaintiff appealed the court’s dismissal of
the case, and on 13 February 2014 the Ninth Circuit affirmed in part and
reversed in part, ruling that claims based on four alleged
misrepresentations should not have been dismissed. The case has been
remanded to the trial court for further proceedings.
Exxon Valdez matters
Approximately 200 lawsuits were filed in state and federal courts in
Alaska seeking compensatory and punitive damages arising out of the
Exxon Valdez oil spill in Prince William Sound in March 1989. Most of
those suits named Exxon (now ExxonMobil), Alyeska Pipeline Service
Company (Alyeska), which operates the oil terminal at Valdez, and the
other oil companies that own Alyeska. Alyeska initially responded to the
spill until the response was taken over by Exxon. BP owns a 46.9%
interest (reduced during 2001 from 50% by a sale of 3.1% to Phillips) in
Alyeska through a subsidiary of BP America Inc. and briefly indirectly
owned a further 20% interest in Alyeska following BP’s combination with
Atlantic Richfield. Alyeska and its owners have settled all the claims
against them under these lawsuits. Exxon has indicated that it may file a
claim for contribution against Alyeska for a portion of the costs and
damages that it has incurred. If any claims are asserted by Exxon that
affect Alyeska and its owners, BP will defend the claims vigorously.
Lead paint matters
Since 1987, Atlantic Richfield Company (Atlantic Richfield), a subsidiary of
BP, has been named as a co-defendant in numerous lawsuits brought in
266 BP Annual Report and Form 20-F 2013