BP 2013 Annual Report Download - page 43

Strategic report
BP Annual Report and Form 20-F 2013 39
Legal update
BP is subject to a number of different legal proceedings in connection with
the Deepwater Horizon incident. These include the legal proceedings
relating to the PSC settlements; the multi-district litigation proceedings in
New Orleans; a range of civil lawsuits, including claims brought by states
and local government entities; other civil claims by individuals and
businesses; and the multi-district litigation proceedings in Houston in
relation to alleged violations of securities legislation. In 2012, BP reached a
settlement with the US Department of Justice relating to all federal
criminal charges and a settlement with the SEC resolving certain civil
claims. Certain BP entities have been subject to suspension and
debarment by the US Environmental Protection Agency (EPA).
PSC settlements
There have been various rulings from the district court and the US Court of
Appeals for the Fifth Circuit (Fifth Circuit) on matters relating to interpretation
of the PSC economic and property damages settlement agreement,
including the meaning of the causation requirements of the agreement.
In 2013 a panel of the Fifth Circuit (the business economic loss panel) set
aside the claims administrator’s interpretation of the business economic
loss framework of the settlement agreement and instructed the district
court in New Orleans to undertake additional proceedings to determine the
correct interpretation of the agreement. In December 2013, the district
court ruled that, for the purposes of determining business economic loss
claims, revenues must be matched with expenses incurred by claimants in
conducting their business even where the revenues and expenses were
recorded at different times. The district court assigned the development of
more detailed matching requirements to the claims administrator. The
claims administrator has issued a draft policy addressing the matching of
revenue and expenses for business economic loss claims. The parties
have made written submissions on the draft policy and the claims
administrator will issue a final policy to which BP and the PSC have the
right to object and seek review by the district court.
The district court also ruled that the settlement agreement did not contain
a causation requirement beyond the revenue and related tests set out in an
exhibit to that agreement. BP appealed the district court’s ruling on
causation to the business economic loss panel, but the panel affirmed the
district court’s ruling on 3 March 2014. BP is considering its appeal options,
including a potential petition that all the active judges of the Fifth Circuit
review the 3 March decision. The temporary injunction on business
economic loss claims offers and payments will be lifted when the case is
transferred back to the district court; the timing of this would be affected
by the status of any such petition by BP.
A separate but related appeal was brought by objectors to the economic
and property damages settlement challenging the overall fairness and
lawfulness of the agreement. This appeal was heard by a different panel of
the Fifth Circuit, which, in January 2014, upheld the district court’s
approval of the settlement agreement and left to the business economic
loss panel the question of how to interpret the agreement, including the
meaning of the agreement’s causation requirements. BP and several of the
objectors have filed petitions requesting that all the active judges of the
Fifth Circuit review the decision to uphold the approval of the settlement.
BP has filed a lawsuit alleging that it relied on fraudulent representations by
a former PSC lawyer when negotiating aspects of the PSC settlement
relating to the $2.3-billion seafood compensation fund. The district court
granted the lawyer’s motion to stay this lawsuit, pending developments in
the government’s criminal investigation and possible indictment. The
district court also denied BP’s motion requesting that further payments
from the seafood compensation fund be suspended on the basis that no
further payment from the fund is imminent. The district court deferred
ruling on a motion by BP seeking to determine the extent of the fraud and
what portion, if any, of the seafood fund should be returned as a result.
Multi-district litigation proceedings in New Orleans
The multi-district litigation trial relating to liability, limitation, exoneration
and fault allocation (MDL 2179) began in the federal district court in New
Orleans in February 2013. The first phase of the trial focused on the causes
of the accident and the allocation of fault among the defendants. The
second phase focused on efforts to stop the flow of oil and the volume of
oil spilled. BP is not aware of the timing of the district court’s rulings in
respect of these first two phases of the trial and the court could issue its
decision at any time.
In a subsequent trial phase, for which no trial date has yet been set, the
district court will consider the statutory per-barrel penalty rate to be applied
in determining penalties under the Clean Water Act. There is significant
uncertainty about the amount of Clean Water Act penalties to be paid, and
the timing of payment, as these will depend on the finding as to negligence
or gross negligence, the volume of oil spilled and the application of
statutory penalty factors. The district court has wide discretion in its
determination as to whether a defendant’s conduct involved negligence or
gross negligence as well as in its determinations on the volume of oil
spilled and the application of statutory penalty factors.
Civil claims
BP p.l.c., BP Exploration & Production Inc. (BPXP – the BP group company
that conducts exploration and production operations in the Gulf of Mexico)
and various other BP entities have been among the companies named as
defendants in approximately 2,950 civil lawsuits resulting from the accident
and oil spill, including the claims by several states and local government
entities referred to above. The majority of these lawsuits assert claims
under OPA, as well as various other claims, including for economic loss
and real property damage, and claims under maritime law and state law.
These lawsuits seek various remedies including economic and
compensatory damages, punitive damages, removal costs and natural
resource damages. Many of the lawsuits assert claims excluded from the
PSC settlements, such as claims for recovery for losses allegedly resulting
from the 2010 federal deepwater drilling moratoria and the related
permitting process. Many of these lawsuits have been consolidated with
the multi-district litigation proceedings in New Orleans.
Multi-district litigation proceedings in Houston
The MDL 2185 proceedings pending in federal court in Houston, including
a purported class action on behalf of purchasers of American Depository
Shares under US federal securities law, are continuing. A jury trial is
scheduled to begin in October 2014.
SEC settlement
In connection with the 2012 settlement with the SEC resolving the SEC’s
Deepwater Horizon-related civil claims, as of 31 December 2013, BP had
completed its first two payments totalling $350 million. A final $175 million
payment, plus accrued interest, is scheduled for 2014.
US government criminal plea agreement
Under the terms of the criminal plea agreement reached with the US
government in 2012 to resolve all federal criminal claims arising out of the
Deepwater Horizon incident, BP is taking additional actions, enforceable by
the court, to further enhance the safety of drilling operations in the Gulf of
Mexico. The first annual update on BP’s compliance with the plea
agreement is expected to be available by 31 March 2014 and to be
published at bpxpcompliancereports.com.
The plea agreement also provides for the US government to appoint two
independent monitors – a process safety monitor and an ethics monitor –
as well as an independent third-party auditor. The process safety monitor
has been retained, for a period of up to four years from February 2014, and
will review and provide recommendations concerning BPXP’s process
safety and risk management procedures for deepwater drilling in the Gulf
of Mexico. The ethics monitor has been retained, for a term of up to four
years from 2013, and will review and provide recommendations concerning
BP’s ethics and compliance programme. The third-party auditor has also
been retained and will review and report to the probation officer, the US
government and BP on BPXP’s compliance with the plea agreement’s
implementation plan.
US Environmental Protection Agency (EPA) suspension and
debarment
In November 2012, the EPA suspended BP p.l.c., BPXP and other BP
companies from receiving new federal contracts or renewing existing
ones. In 2013, the EPA debarred the Houston headquarters of BPXP, thus
effectively preventing it from entering into new contracts or leases with the
US government. In November 2013, the EPA continued the suspensions of
the previously suspended companies, suspended two new BP entities and
proposed discretionary debarment of all suspended BP entities. BP is
challenging the EPA’s suspension and debarment decisions. Neither the
suspensions nor the proposed debarments affect existing contracts BP
has with the US government, including those relating to current and
ongoing drilling and production operations in the Gulf of Mexico. BP