Critics blast "miniscule" BP settlement
(MoneyWatch) A federal judge on Tuesday approved a criminal settlement between BP (BP) and the Department of Justice under which the oil giant will plead guilty to manslaughter and other criminal charges and agree to pay $4 billion in fines for the 2010 blowout of the Deepwater Horizon oil rig. That disaster killed 11 people and created one of the world's worst environmental catastrophes.
Investors liked the deal. People whose lives were changed by the disaster did not.
To put the settlement in financial perspective, some numbers are in order. First, the settlement is less than BP's third-quarter net profit of $4.7 billion, which was up from $3.7 billion in the previous quarter. And it comes after a strong financial performance in 2011. Fourth quarter results, as well as those for the full year, are due to come out soon; financial analysts who cover the company expect BP to show continued strength.
After the court's decision to ratify the deal was announced, BP's share price surged more than 2 percent to $45.21. One shouldn't read too much into it, since energy stocks were up across the board because of rising oil prices. And markets are said to like certainty, so this deal puts potentially expensive litigation behind the oil company. But investors clearly do not consider the payout overly expensive or threatening on any level.
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While in general the penalty is being touted as a record amount, environmental advocates and many others felt it does little to dissuade companies such as BP from taking outsized risks to land outsized profits.
"This is a miniscule settlement, " said Tyson Slocum, director of Public Citizen's energy program. "It's a cost of doing business. If this were an individual, the keys would be thrown away. But we give enormous leniency to corporate defendants."
Slocum cited another unhappy result of the settlement: The government went to huge expense gathering evidence in the course of preparing its criminal case, and typically in a result such as this one that information is sealed from the public.
He thinks that in such cases there should be criminal penalties for high-level executives, not just mid-level managers, an argument like the one made about top level bank executives who caused the financial crisis. And, he said, such companies should be barred from getting government oil leases for at least five years.
"There need to be real sanctions," he said.
BP may face more financial penalties because of ongoing civil litigation over the Deepwater disaster.
The Sierra Club favors a roughly $60 billion award to resolve those charges. That would include $20 billion in pollution fines related to the company's violation of the Clean Water Act and roughly $40 billion to pay for present and future restoration of areas damaged in the disaster. The figure is based on the maximum allowable penalty under the Clear Water Act of $4,300 per barrel, multiplied by the nearly 5 billion barrels of oil estimated to have gushed into the Gulf, said Devorah Ancel, an attorney with the environmental group.
Ancel also expressed doubt that BP and the federal government have taken adequate steps to guard against future spills. "Regulations remain lax," she said, "and we don't think the government should be approving exploration and drilling permits without ensuring that companies have adequate control and response mechanisms in place. BP hasn't proved that they do have these controls or the technology to respond to disaster."
Mike Conathan, the director of ocean policy at Center for American Progress, a Washington think tank, criticized the fact that there is still a liability cap of $75 million for oil companies involved in spills. "Congress still has made no effort to raise the cap," he said. "BP, to its credit, was willing to throw that out the window, but they didn't have to. Any oil company in the future could say, 'We only owe $75 million.' "
Then there are the families of the victims of the explosion, who had written impassioned letters to U.S. District Judge Sarah Vance urging her to reject the settlement.
"I do not want them to only throw money at the problem," wrote Kathleen Goodlife whose brother Gordon Jones died in the explosion. "I want compassion and acknowledgment of what my brother gave up. I want to see for once, BP doesn't just slide by."
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