Last week, oil and gas giant BP agreed to a $18.7 billion settlement with the U.S. government for damages to the Gulf Coast caused by its 2010 Deepwater Horizon oil spill. Since 2010, BP has made concerted efforts to repair the damage caused by the disaster. This agreement, if accepted by a federal judge, will settle the remaining state and federal claims against the company. This settlement will help facilitate the continued Gulf recovery efforts and sends a strong messages to other oil companies: if you cause damage, you will pay to fix it. But while $18.7 billion does seem like a large amount–it’s the largest settlement ever reached for environmental damage–the question remains: is it enough?

In April 2010, BP’s Deepwater Horizon drilling rig exploded and sank, causing a sea-floor oil leak that took 87 days to control. During that period, an estimated 200 million gallons of crude oil leaked into the Gulf of Mexico, damaging approximately 68,000 square miles of water and almost 500 miles of U.S. coastline. To put these numbers in context, the Deepwater Horizon spill leaked 19 times more oil than the Exxon Valdez incident in 1989. Some of the environmental impacts may not be fully understood for decades, and while the Gulf economy has experienced a revival, there are still lingering effects from the disaster.

Within weeks of the disaster, BP announced that it pledged billions of dollars to aid the cleanup and recovery effort. While these efforts marked a show of good faith, it is also important to note that the company faced intense public outrage, not to mention potential backlash from the Justice Department to penalize BP. This move ensured that investors did not flee the company and helped keep the Justice Department at bay. In 2012, BP agreed to a class action settlement with attorneys representing thousands of individuals and organizations affected by the spill. In the wake of this agreement, many Gulf Coast residents came forward to claim damages, including some whose claims were dubious at best. This was controversial–a deal once celebrated by BP became an agreement which from the company’s perspective took advantage of its good intentions. In November 2012, BP pleaded guilty to 12 felonies, settling another component of its liability, and paid the government $4.5 billion in fines.

It would appear that BP is being heavily penalized for the 2010 spill–spending $25 billion directly afterwards, $4.5 billion in government penalties, and agreeing to this $18.7 billion settlement–but these repercussions are not as severe as they seem. While BP made considerable efforts to clean up the Gulf and pay for damages, the company has also kept its own interests in mind. BP spent $500 million on a campaign to rebrand its image after the spill, and in 2013 it launched a PR push to complain about fraudulent damage claims. Although the company protested fraudulent claims, the federal government also cracked down harshly on those who made false claims, making these concerns largely invalid.

The incident hasn’t really damaged BP’s financial situation. The company reported profits of $5.3 billion just a year after the Gulf spill, and until the recent decline in oil prices, continued to thrive. Instead of the $54 billion that BP will likely end up spending overall, Louisiana’s top aide for coastal affairs, Garret Graves, argues that its true liability should be much larger. Graves extrapolated from settlements of other large oil spills to estimate what the company’s true liability is. According to his calculations it ought to exceed $125 billion.

While some celebrate this settlement, BP likely received a less severe penalty than it deserved. Since this settlement will resolve all of the government’s remaining claims, it is unlikely that BP will be held legally responsible for any long term damage that may be discovered in the future. Despite its issues with the claims process, BP agreed to the terms and must accept the consequences. Any extra payouts that BP claims are almost certainly outweighed by the potential negative effects if BP were to put up a stronger fight. Public outrage would have remained fierce and this would likely have led to a federal campaign to give BP a harsher punishment.

Interestingly, BP’s stock rose sharply after the settlement was announced, likely due to investor confidence that this will end the company’s issues. All that is left now is for the courts to approve of the deal and it will officially become the largest settlement with a single entity in American history. Despite this, BP should thank its lucky stars that it managed to avoid more severe consequences for this spill.

Maurin Mwombela

Maurin Mwombela is a member of the University of Pennsylvania class of 2017 and was a Law Street Media Fellow for the Summer 2015. He now blogs for Law Street, focusing on politics. Contact Maurin at staff@LawStreetMedia.com.

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We all know that BP’s Deepwater Horizon oil spill in April, 2010 was one of the worst spills to date. But the accident continues to have ramifications and inflict damage on the terrestrial and aquatic ecosystems there. In light of these findings, advocates are hoping to address cleanup and drilling policies and procedures and hope to make improvements or change the practices entirely.

A place called Cat Island in Louisiana used to be a major nesting ground for multiple species of birds. The oil spill poisoned the vegetation there, which has continued to die off. In so doing, the root system disappeared, leaving the soil vulnerable to erosion. In fact, over the past five years the island in its entirety has all but disappeared. The birds that nest there have it imprinted in their DNA to do so; it is instinctual to go there and nest. If the island disappears, they will not seek out a new site, they simply will not breed. Although the species may have survived the initial spill, they still face severe threats to their survival. As it stands, the reduced surface area of the island has increased competition and lessened available real estate for nests; essentially, they reproduce in fewer numbers already.

The extent of the Deepwater Horizon spill. Image courtesy of SkyTruth via Flickr

While birds and their black oil slick-covered feathers may be one of the most visible manifestations of a spill, additional long term studies have demonstrated that many types of fish are threatened in more indirect ways as well. Oil damage can cause birth defects and irregularly shaped or mis-beating hearts in baby fish. This means that they can die younger, or can suffer due to a lessened ability to catch prey or escape from becoming prey themselves. Some of these conclusions have come from long term studies following up on the Exxon Valdez spill in 1989. Pacific herring, for example, collapsed in the Prince William Sound in 1993 and have not returned. As always, this is problematic not just for the sake of saving fish and bird lives, but because these species play intricate roles in the health of very complicated ecosystems. The Pacific salmon run is vital to bear populations and the quality of the dense Northwestern forests themselves. In addition, fishing and economic interests are at stake for people who work in those industries.

The process of marine snow involves organic matter such as phytoplankton drifting down from the upper layers of the sea into the depths. This is an aspect of transferring energy and photosynthesized material from the sunlight rich surface to the darker waters, and serves as an important link in the food chain. But when oil is introduced, it fuses to these particles and finds its way to the deep water in what is called a dirty blizzard. This means that an oil spill does not just glide across the surface of the water and endanger creatures near the top, but more deeply affects ocean life. More living things are endangered as they are coated in a layer of oil. In addition, limited human access to these regions means that this aspect of a spill is much more difficult to clean up.

Damage extends far beyond what is visible at the surface. Image courtesy of Green Fire Productions via Flickr

These three studies are among many that catalogue the long term damage inflicted by the Deepwater Horizon spill. Because the results may influence what BP will be required to continue to pay in damages, the company has disputed the validity of them all.

Researchers at the University of Wisconsin recently released a series of papers detailing studies that produced an oil repellant material. In one test, they coated wire with the material and then poured on a mixture of water and motor oil. The water ran off and the oil clumped together, easily removed. The presumed application of this discovery is that it will make clean ups of oil spills easier. Yet there are two ways in which this breakthrough falls short. The first is that while cleaning up a spill may be easier and faster, that does not detract from the damage that it may inflict when it occurs. Secondly, it would be best not to think of it as a get out of jail free card, in the same manner that some seem to think that recent proposals regarding climate engineering mean that we can continue with our ways and inflict as much damage as we please because we can presumably go back and repair it later. Rather, we need to address the problem at its source.

Are we supposed to coat all manners of wildlife with oil repellant material? Image courtesy of Louisiana GOHSEP via Flickr

The Obama administration is about to establish new safety regulations for offshore drilling. Over the course of the previous five years, other responses to the BP spill have included new standards for the casings of wells. This, being the third safety proposal since the incident, would deal with measures to prevent blowouts. These moves are intended to prevent an accident like Deepwater Horizon from occurring again, especially since the administration has been reviewing proposals to begin further offshore drilling in the Gulf of Mexico and in the Chukchi Sea off the coast of Alaska. But an investigative panel determined that the chief cause of the Deepwater spill was not the blowout but a wide ranging occurrence of oversights and improper adherence to regulations. Thus the very process by which offshore drilling is pursued is flawed and in need of revamping. But is this the true source of the problem either? As a spokesman for the Natural Resource Defense Council stated, “Industry and government have taken measures over the past five years to reduce some of the risk in what is an inherently dangerous operation at sea. that’s a far cry from saying it’s safe…”

A 2013 spill burns near New Orleans. Image courtesy DVIDSHUB via Flickr

Thus the very nature of offshore drilling is a problem, and going back further still, our continuing reliance on fossil fuels is a problem. As oil pipelines continue to burst and fracking continues to contaminate water, offshore drilling and the environmental risks therein are yet another manifestation of some of the things in need of complete change, not just tweaking or improvement.

Franklin R. Halprin

Franklin R. Halprin holds an MA in History & Environmental Politics from Rutgers University where he studied human-environmental relationships and settlement patterns in the nineteenth century Southwest. His research focuses on the influences of social and cultural factors on the development of environmental policy. Contact Frank at staff@LawStreetMedia.com.

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Hey y’all!

As I’ve mentioned before, I just took the LSAT and have started the process of applying to law school. One of my top choices is South Texas College of Law, which is located in Downtown Houston and has a great reputation. While researching law schools I came across an interesting–and to be honest shocking–new addition at South Texas. The school recently started the region’s first Oil & Gas Law Institute. The shocking part is that such an institute didn’t already exist, considering how big the oil and gas industry is here and how badly it always needs lawyers.

Houston is the capital of the oil and gas business. Everywhere I turn there is another oil and gas company or a company that has some kind of association to that industry; Shell, BP, ExxonMobil, Technip, Worley Parsons, and Mustang Engineering are all here. These six companies are within a two-mile radius of my house and there is no escaping them. I’ve also considered a law career in the oil and gas sector; it makes sense being a native Houstonian with plans to stick around here for a while longer.

Establishing this Oil & Gas Law Institute will allow South Texas to respond to the more specific needs of the energy industry by which its surrounded and promote better education and training for students interested in working in that sector.

The idea is that this Institute will mostly concentrate on creating applied petroleum-related transactional, regulatory, and title practice skills. Christopher Kulander, a visiting associate professor at South Texas, has been appointed the Institute’s, and he has quite the resume; he taught oil and gas law for three years at Texas Tech University (wreck’em!), is a legal writer, is used as an expert witness, and frequently gives presentations about the oil and gas industry, not to mention he is also Of Counsel at Haynes and Boone, LLP.

Kulander states that one of his “main goals is to make the third year in law school much more specialty-focused and practice responsive” for those interested in going into this particular field. The Institute also plans to place advanced students in the legal departments of Houston oil and gas companies, a great way to get in the door of these corporations, which is no easy feat. There are also hopes to expand the areas of study in the Oil & Gas Law Institute with courses focusing on international petroleum transactions, midstream and downstream oil and gas activities, as well as other sources of energy.

This is a small step into a massive industry that definitely needs lawyers on its side.

Allison Dawson

Allison Dawson was born in Germany and raised in Mississippi and Texas. A graduate of Texas Tech University and Arizona State University, she’s currently dedicating her life to studying for the LSAT. Twitter junkie. Conservative. Get in touch with Allison at staff@LawStreetMedia.com.

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It’s safe to say that BP became one of the most hated companies in America in April of 2010 for causing the biggest oil spill to happen in the Gulf of Mexico off the coast of Louisiana. Almost 5 million barrels of oil ended up in the water. Needless to say, the Gulf States were affected by the tremendous damage, and some individuals and businesses continue to suffer even now.

Facing not just an image crisis, but also the potential for hundreds of lawsuits, BP started compensating businesses and individuals soon after the spill started. The swift action looked good for the company, but recently, has proven to be a headache for its legal team.

The actual agreement to compensate individuals and businesses after the spill took almost two years to develop- it was completed in December 2012. But it didn’t take long for BP to take exception with how the settlement was applied. Late last year, BP tried to stop paying settlements for two reasons: first, because the formula being used to calculate claims was inflating the amount of money people received, and second, too many of the claims being awarded couldn’t be tied directly to the spill. If BP got its way, it would owe a lot less money to a lot fewer people.

BP argued in court that the terms of the settlement were being misconstrued and taken advantage of- but the court disagreed. 2 of 3 judges on an appeals panel said that while certain accounting methods need to change (a win for BP’s first claim), the company agreed to the terms of this settlement, and now has to stick to them. According to a company spokesman, BP is considering the possibility of an appeal.

Companies battling out the terms of an agreement in court aren’t particularly unusual, but this case is interesting because of the circumstances surrounding the agreement, and how BP has responded as a company. The settlement was drafted over a two-year period; it wasn’t created in a day, or even a month. But the settlement was certainly great PR for the company. While it didn’t undo everything that happened during the spill, it showed the company was willing to work with those who had been negatively affected by its actions.

With that said, throughout the course of developing this agreement, BP could have had any kind of financial expert look over the calculations. It should be safe to assume that someone from BP looked over the math, because as the appellate panel pointed out, BP agreed to the terms of the settlement before signing them. BP now claims that the formulas used were too broad or not accurate enough, but in the two year period leading up to the deal being signed, we should wonder whether that question ever came up.

And the same goes for BP’s contention that too many business and individuals who can’t prove they were affected by the spill are getting money. If there was a loophole so large, one that didn’t narrow the beneficiaries of the settlement to people affected by the spill- wouldn’t BP have caught that? Additionally, while they aren’t required to provide supplemental documentation while making the claim, individuals and businesses that apply for money from the company are held to the penalties of perjury. Circuit Judge Leslie Southwick noted the settlement’s claims “are not as protective of BP’s present concerns as might have been achievable, but they are the protections that were accepted by the parties and approved by the district court.” Basically, BP had the opportunity to narrow the definitions and procedures used in the settlement, but they didn’t.

But the bigger picture here might be that companies, no matter how big, can’t just renege on a settlement they debated and eventually agreed to. BP is paying billions more than it expected to as a result of this settlement. And understandably, it’s probably looking for a way to minimize the loss. But BP should have thought ahead when it agreed to a settlement that wasn’t as precise as possible. Of course, it’s also possible the company had no problems with the settlement until it realized just how much money it would have to hand over to people filing claims. According to BP’s website, the company has already shelled out over $11 billion, and people are still filing claims.

Whatever happens, BP is turning into a prime example of an agreement gone wrong.

[NYT] [Bloomberg] [Case] [BP]

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Molly Hogan (@molly_hogan13)

Featured Image Courtesy of [Roy Luck via Flickr]

Molly Hogan

Molly Hogan is a student at The George Washington University and formerly an intern at Law Street Media. Contact Molly at staff@LawStreetMedia.com.

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