BP 2012 Annual Report Download - page 63

Business review: BP in more depth
Business review: BP in more depth
BP Annual Report and Form 20-F 2012
61
paid in relation to current claims, and the number, type and amounts
payable for claims not yet reported. In addition, there is further uncertainty
in relation to interpretations of the claims administrator regarding the
protocols under the settlement agreement and judicial interpretation of
these protocols, and the outcomes of any further litigation including in
relation to potential opt-outs from the settlement or otherwise. The PSC
settlement is uncapped except for economic loss claims related to the
Gulf seafood industry. See Risk factors on pages 41-42, Financial
statements – Note 2 on page 194, Note 36 on page 235 and Note 43 on
page 253 for further information.
Claims under the Oil Pollution Act of 1990
On 4 June 2012, the BP claims programme also began accepting claims
under the Oil Pollution Act of 1990 (OPA 90). The programme is open to
claimants that wish to file economic and property damages claims and fall
into one of three categories: individuals and businesses that are not class
members; individuals and businesses that are class members, but
exercise their legal right to opt out of the class settlement; and individuals
and businesses that are class members but wish to pursue claims that are
expressly reserved to them pursuant to the PSC settlement, to the extent
such claims may fall within OPA 90.
Claims payments
By the end of 2012, BP had paid a total of $8.2 billion to individual and
business claimants, including payments from the DHCSSP, the Gulf Coast
Claims Facility, the BP claims programmes and the court-supervised
transitional claims programme. In 2012, $1.9 billion was paid to individuals
and businesses through the various programmes.
BP is also responsible for directly managing claims and funding requests
for losses or expenses incurred by states, parishes, counties, federally
recognized Indian tribes and other government entities. These
government claims primarily cover costs associated with response and
removal activities, increased public services and loss of revenues due
to the accident.
Government entities have received approximately $1.4 billion in payments
for claims, advances, and settlements.
Supporting recovery of the tourism and seafood industries
To support tourism in the affected states, BP has committed $179 million
by the end of 2013 to Alabama, Florida, Louisiana and Mississippi for
regional and national tourism promotion campaigns. To date, tourism
organizations have received $173 million and are using the BP funds in
part to expand their advertising and marketing efforts to reach potential
visitors. State and regional tourism organizations reported strong visitor
numbers across the affected states in 2012.
In addition to resolving legitimate claims made by those in the fishing and
seafood processing industries, by the end of 2012 BP had paid or
committed to pay $82 million to Alabama, Florida, Louisiana and
Mississippi for state-led seafood testing and marketing programmes.
A further $57 million is being given to non-profit groups and government
entities to promote the tourism and seafood industries as part of the PSC
settlement.
Although research and monitoring continues, a number of experts
believe the Gulf of Mexico seafood industry is making a strong recovery.
Government testing results have led state and federal officials to declare
that Gulf seafood is safe to consume. Government landings and
abundance data show that Gulf seafood generally is within pre-spill
landings and population trends in most areas in the northern Gulf.
According to a September 2012 report from the National Oceanic and
Atmospheric Administration (NOAA), 2011 commercial seafood landings
in the Gulf reached their highest levels since 1999, although the results
varied by state and by species.
Agreement with the US government
On 15 November 2012, BP Exploration & Production Inc. (BPXP) reached
an agreement with the US government to resolve all federal criminal
claims arising out of the Deepwater Horizon accident, spill, and response.
On 29 January 2013, the US District Court for the Eastern District of
Louisiana accepted BPXP’s pleas and sentenced BPXP in accordance with
the criminal plea agreement. Under the terms of the criminal plea
agreement, BPXP pleaded guilty to 11 felony counts of Misconduct or
Neglect of Ships Officers relating to the loss of 11 lives; one
misdemeanour count under the Clean Water Act; one misdemeanour
count under the Migratory Bird Treaty Act; and one felony count of
obstruction of Congress. As part of the resolution of federal criminal
claims, BPXP will pay $4 billion, including $1.256 billion in criminal fines, in
instalments over a period of five years. Under the terms of the criminal
plea agreement, a total of $2.394 billion will be paid to the National Fish &
Wildlife Foundation (NFWF) over a period of five years. In addition, $350
million will be paid to the National Academy of Sciences (NAS) over a
period of five years. The court also ordered, as previously agreed with the
US government, that BPXP serve a term of five years’ probation.
Also on 15 November 2012, BP reached a settlement with the US
Securities and Exchange Commission (SEC), resolving the SEC’s
Deepwater Horizon-related civil claims against the company under
Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 and the
associated rules. BP has agreed to a civil penalty of $525 million, payable
in three instalments over a period of three years, and has consented to the
entry of an injunction prohibiting it from violating certain US securities
laws and regulations. The SEC’s claims are premised on oil flow rate
estimates contained in three reports provided by BP to the SEC during a
period from 29 April 2010 to 4 May 2010, within the first 14 days after the
accident. The settlement was approved by the US District Court for the
Eastern District of Louisiana on 10 December 2012, and BP made its first
payment of $175 million on 11 December 2012.
Under US law, companies convicted of certain criminal acts are subject to
debarment from contracting with the federal government. The charges to
which BPXP pleaded guilty included one misdemeanour count under the
Clean Water Act which, by operation of law following the court’s
acceptance of BPXP’s plea, triggers a statutory debarment, also referred
to as mandatory debarment, of the BPXP facility where the Clean Water
Act violation occurred.
On 1 February 2013, the EPA issued a notice that BPXP was mandatorily
debarred at its Houston headquarters. Mandatory debarment prevents
BPXP from entering into new contracts or new leases with the US
government. A mandatory debarment does not affect any existing
contracts or leases a company has with the US government and will
remain in place until such time as the debarment is lifted through an
agreement with the EPA.
On 28 November 2012, the EPA notified BP that it had temporarily
suspended BP p.l.c., BPXP and a number of other BP subsidiaries from
participating in new federal contracts. As a result of the temporary
suspension, the BP entities listed in the notice are ineligible to receive any
US government contracts either through the award of a new contract, or
the extension of the term of, or renewal of, an expiring contract. The
suspension does not affect existing contracts the company has with the
US government, including those relating to current and ongoing drilling
and production operations in the Gulf of Mexico.
With respect to the entities named in the temporary suspension, the
temporary suspension may be maintained or the EPA may elect to issue a
notice of proposed discretionary debarment to some or all of the named
entities. Like suspension, a discretionary debarment would preclude BP
entities listed in the notice from receiving new federal fuel contracts, as
well as new oil and gas leases, although existing contracts and leases will
continue. Discretionary debarment typically lasts three to five years, and
may be imposed for a longer period, unless it is resolved through an
administrative agreement.
While BP’s discussions with the EPA have been taking place in parallel to
the court proceedings on the criminal plea, the company’s work towards
reaching an administrative agreement with the EPA is a separate process,
and it may take some time to resolve issues relating to such an agreement.
BPXP’s mandatory debarment applies following sentencing and is not an
indication of any change in the status of discussions with the EPA. The
process for resolving both mandatory and discretionary debarment is
essentially the same as for resolving the temporary suspension. BP
continues to work with the EPA in preparing an administrative agreement
that will resolve suspension and debarment issues.
For further details, see Legal proceedings on pages 162-169.
Environmental restoration
We continued to support and participate in the Natural Resource
Damages Assessment (NRDA) process and made progress in 2012 in a