BP agrees to ‘game changer’ $18.7B settlement with states

Source: Annie Snider and Jeremy P. Jacobs, E&E reporters • Posted: Monday, July 6, 2015

The $18.7 billion settlement agreement announced this morning for the 2010 Deepwater Horizon oil spill promises to set off an unprecedented effort to repair the Gulf of Mexico’s marshes, fisheries and deep sea corals, but it will be, at best, only a first step toward restoring the long-ailing ecosystem, the region’s environmentalists say.

The¬†agreement in principle¬†unveiled this morning by state officials, the Department of Justice and BP PLC includes $7.1 billion to repair natural resources damage caused by the spill. It also includes $5.5 billion in Clean Water Act fines, 80 percent of which will be sent back to the five Gulf states for ecological and economic recovery efforts thanks to the Resources and Ecosystems Sustainability, Tourist Opportunities, and Revived Economies of the Gulf Coast States Act — dubbed the RESTORE Act — passed by Congress in 2012.

Details of the agreement that closes a major chapter in the disaster that killed 11 rig workers and spewed millions of barrels of oil into the Gulf of Mexico are still being worked out, and officials say the final consent decree — once there is one — will be put out for public comment before it’s finalized.

Louisiana Attorney General James “Buddy” Caldwell (R) called the agreement in principle a “game changer” for his state’s families and communities.

“The current settlement will allow us to have immediate action to provide needed restoration and repair of the Gulf and Louisiana shoreline, as well as to rejuvenate certain areas of the state’s economy that still suffers from the spill’s impact,” he said during a morning news conference.

Whether the final settlement amount is what it should be — under requirements of the law or to meet ecological needs on the ground — stands to be a major point of debate across the region and in Washington, D.C., in the days ahead.

But for now, the region’s environmental advocates say the most important thing is that a settlement brings certainty.

David Muth, director of the National Wildlife Federation’s Gulf restoration program, said restoration efforts since the spill have been hamstrung by the question of how much money will ultimately be available for them. Louisiana, which is battling a breakneck rate of coastal wetlands erosion, has a $50 billion, 50-year plan to restore wetlands and protect communities, and has committed to using spill money, some of which is already available through other settlements, to fund it.

“We have been trying for five years to get this thing moving,” Muth said. “For instance, in Louisiana … we have this plan, this plan works by integrating and coordinating projects and doing them in the right sequence. That’s incredibly hard to do when you don’t know what the money stream is going to be.”

Under the terms of the settlement announced today, Louisiana will receive $5 billion to cover natural resource damage and at least $787 million in Clean Water Act fines under the 2012 RESTORE Act.

Muth said that could cover roughly the next decade or decade and a half’s worth of work under the state’s coastal master plan, while the state looks for future funding streams.

He also noted that states and communities can use a final settlement agreement to issue bonds if they need money sooner.

Restoring the open ocean

The settlement also tags the first significant chunk of money for restoration efforts in the Gulf of Mexico’s blue water. Of the $7.1 billion in new natural resources damage payments, $1.24 billion is slated specifically for open ocean projects.

Although the spill occurred in the Gulf’s deep water, little of the money that has flowed to restoration so far has been for projects beyond the shoreline.

Part of the problem, state and federal agencies have said, is the lack of scientific understanding about the marine ecosystem.

But recent studies have pointed to serious spill-related damage to prize bluefin tuna and bottlenose dolphin populations (Greenwire, April 17).

“Seeing $1.24 billion set aside by the [Natural Resource Damage] Assessment for open ocean projects is incredibly positive,” said Bethany Kraft, director of the Ocean Conservancy’s Gulf restoration program. “That’s where the impact occurred. We’ve seen some incredibly troubling news about impacts in the open ocean, so seeing that money is really important.”

But a key remaining question is how the settlement will deal with environmental damage that comes to light years after the ink dries on the consent decree.

Ecological problems can take years to fully play out, as was the case following the Exxon Valdez spill in Alaska, when the Pacific herring fishery collapsed two years after the settlement was signed (Greenwire, March 24, 2014).

Environmentalists have long argued that any settlement agreement must include a strong “reopener” clause to allow for compensation for environmental damage that was unforeseen at the time of settlement.

Details are still murky on the settlement with BP announced today, but it appears to have a $232 million reserve fund to cover such damage, Kraft said.

“That’s significant because if you think back to Exxon Valdez, they had impacts that emerged after the date of the settlement, and they were never able to reopen the case because the language was just too tight, the bar was just too high,” she said. “So having a dedicated reserve that you can draw from if and when additional impacts that you don’t know about today come to light is hugely positive and incredibly important to addressing restoration in a very holistic way.”

Legal maneuvering

From a legal perspective, BP had good reason to settle now: Its efforts in court were failing one by one.

The energy giant has on multiple occasions asked the Supreme Court to review legal proceedings stemming from the 2010 accident, including seeking to halt payments to businesses and landowners BP claimed were not actually harmed by the spill.

The Supreme Court, in every instance, denied BP’s requests.

Most notably, the high court on Monday declined to take up BP’s bid to sidestep Clean Water Act penalties.

“BP needed to end this litigation and move on,” said David Uhlmann, a University of Michigan law professor. “They never had a chance with their arguments that they were not liable for CWA penalties.”

BP, along with Anadarko Petroleum Corp., claimed they owned only the Macondo well on the floor of the Gulf. Transocean Ltd. owned and operated the Deepwater Horizon rig and blowout preventer that failed in the spill. Consequently, the oil, BP and Anadarko said, was released from Transocean’s equipment and not theirs.

Such an argument would have shielded BP and Anadarko from billions of dollars in Clean Water Act penalties. But a federal appeals court rejected it, and, in a customary short order without explanation, the Supreme Court declined to review it (Greenwire, June 29).

In federal district court, BP’s options also appeared close to running dry.

Judge Carl Barbier of the Eastern District of Louisiana had already ruled that BP was “grossly negligent” in its actions leading up to the spill.

At the time of the settlement, Barbier was considering the size of BP’s Clean Water Act penalties. And most observers expected the judge to come close to the $13.7 billion maximum.

That has led some who have watched the case closely to suggest the Justice Department could have potentially gotten more. Under the settlement, BP will pay $5.5 billion for the Clean Water Act violations.

“The total could well have been higher,” said Edward Sherman, a law professor at Tulane University Law School. “I think Barbier would have handed down large civil penalties, and you never know what the economic damages and NRDA [damages] would be.”

Uhlmann agreed, saying the federal government “did not fare nearly as well” as the states in the settlement, because the Clean Water Act penalties were “far less than it might have obtained in court.”

Uhlmann noted, however, that the Justice Department’s aggressive pursuit of the steep penalties in Barbier’s court was pivotal to today’s settlement.

“The potential Clean Water Act penalties drove the total settlement amount,” he said.

Sherman said that with the settlement, BP also avoids another major expense: attorney fees.

BP also benefitted from the settlement by paying more in natural resource damages than Clean Water Act penalties. The natural resource claims are tax deductible, while the civil penalties are not.

The company’s stock rose following the announcement this morning.

Reactions

Across the Gulf, officials and stakeholders, including oil-industry-friendly Republicans, are largely hailing the settlement as a win.

“Today is a great day because we stuck to our guns,” Rep. Garret Graves (R-La.), a freshman congressman who served as Louisiana Gov. Bobby Jindal’s (R) coastal adviser during and after the spill, said during a morning news conference. “There have been offers in the past that would not have made us whole.”

“For months, we battled to protect our shorelines and the unique ecosystems and natural resources of our beautiful Gulf Coast from millions of gallons of oil and chemicals,” Mississippi Gov. Phil Bryant (R) said in a statement. “And for years, we have worked diligently to pursue all legal recourse and rightful compensation resulting from this disaster. Today is a victory for Mississippi and a victory for a treasured way of life on the Gulf Coast.”

Sen. David Vitter (R-La.), who co-sponsored the RESTORE Act and is now running for governor, said he plans to make sure the money is spent swiftly and wisely.

“Five years ago, the BP explosion and spill took the lives of 11 men and devastated our coast, our communities and our economy,” Vitter said. “Properly holding BP accountable and making sure that these monies go toward restoring our coast have been top priorities, and moving forward I’ll make sure we put shovels in the ground soon using this money wisely according to the detailed plan I’ve laid out.”

Environmental advocates, meanwhile, are preparing to up their efforts to make sure that every dollar tagged for restoration under the laws is spent as such. Battles over precise legal language and impact formulas have been taking place for years behind the scenes at the federal-state panel charged with overseeing RESTORE Act funds (Greenwire, April 17).

“Although $18.7 billion is a significant sum, we have serious concerns about how much of this money is actually going to be allocated toward restoring the Gulf’s environment and impacted communities,” said Cynthia Sarthou, executive director of the Gulf Restoration Network, which is suing the federal government over plans to spend some natural resources damage money on an Alabama convention center.

“The funds from this settlement provide a once-in-a-lifetime opportunity to repair the Gulf in the wake of the BP disaster and make our coasts and communities stronger and more resilient for future generations,” she said. “We must not squander this opportunity.”

Even if all the money that could go to ecological restoration does, said Kraft of the Ocean Conservancy, it still represents just a “drop in the bucket” for an ecosystem that had suffered hit after painful hit, even before the Deepwater Horizon spill.

“This is just really the beginning,” she said. “This isn’t the end. We’re all still going to come to work tomorrow, and the business of restoration is going to continue to unfold for decades.”