BP 2014 Annual Report Download - page 241

On 13 March 2014, BP, BPXP, and all other temporarily suspended BP
entities entered into an administrative agreement with the EPA
resolving all issues related to suspension or debarment arising from the
Incident, allowing BP entities to enter into new contracts or leases with
the US government. Under the terms and conditions of the
administrative agreement, which will apply for five years, BP has agreed
to a set of safety and operations, ethics and compliance and corporate
governance requirements.
US Department of Interior matters
On 14 September 2011, the US Coast Guard and Bureau of Ocean Energy
Management, Regulation and Enforcement (BOEMRE) issued a report
regarding the causes of the 20 April 2010 Macondo well blowout (the
BOEMRE Report). The BOEMRE Report states that decisions by BP,
Halliburton and Transocean increased the risk or failed to fully consider or
mitigate the risk of a blowout on 20 April 2010. The BOEMRE Report also
states that BP, Transocean and Halliburton violated certain regulations
related to offshore drilling. In itself, the BOEMRE Report does not constitute
the initiation of enforcement proceedings relating to any violation. On
12 October 2011, the US Department of the Interior Bureau of Safety and
Environmental Enforcement issued to BPXP, Transocean, and Halliburton
Notification of Incidents of Noncompliance (INCs). The notification issued to
BPXP is for a number of alleged regulatory violations concerning Macondo
well operations. The Department of Interior has indicated that this list of
violations may be supplemented as additional evidence is reviewed, and on
7 December 2011, the Bureau of Safety and Environmental Enforcement
issued to BPXP a second INC. This notification was issued to BP for five
alleged violations related to drilling and abandonment operations at the
Macondo well. BP has filed an administrative appeal with respect to the first
and second INCs. BP has filed a joint stay of proceedings with the
Department of Interior with respect to both INCs.
Louisiana Department of Natural Resources
On 21 August 2013, the Louisiana Department of Natural Resources
(LDNR) issued a Cease and Desist Order (the Order) directing BP to apply
for a Coastal Use Permit to remove certain ’orphan’ anchors that had
been placed in coastal waters to secure the containment boom during oil
spill response operations in 2010. On 18 September 2013, BP filed a
complaint in the US District Court for the Middle District of Louisiana
seeking to enjoin the State of Louisiana from enforcing the Order on
grounds including that the Order is pre-empted by federal law. On
7 August 2014, the court entered a final judgment providing that the
Order was pre-empted on the basis of impossibility and obstacle
pre-emption. The LDNR did not file a notice of appeal and the time period
to file such notice has expired.
Pending investigations and reports relating to the Deepwater
Horizon oil spill CSB investigation
The US Chemical Safety and Hazard Investigation Board (CSB) conducted
an investigation of the Incident that is focused on the explosions and fire,
and not the resulting oil spill or response efforts. As part of this effort, on
24 July 2012, the CSB conducted a hearing at which it released its
preliminary findings on, among other things, the use of safety indicators
by industry (including BP and Transocean) and government regulators in
offshore operations prior to the Incident. On 18 September 2014, in
response to Transocean’s challenge to the CSB’s jurisdiction to
investigate the Incident, the Fifth Circuit affirmed the district court’s order
enforcing CSB’s administrative subpoenas against Transocean. BP has
produced documents in compliance with the CSB’s document
subpoenas. Separately the CSB released the first two volumes of its
three-volume report on its investigation into the Incident at a public
hearing in Houston on 5 June 2014. The first two volumes provide an
introduction to the Incident as well as the CSB’s findings regarding the
operation of the blowout preventer and other technical issues. The CSB
has indicated that it plans to release Volume 3 (concerning the role of the
regulator in the oversight of the offshore industry and organizational and
cultural factors) in or around March 2015.
Other legal proceedings
FERC and CFTC matters
The US Federal Energy Regulatory Commission (FERC) and the US
Commodity Futures Trading Commission (CFTC) have been investigating
several BP entities regarding trading in the next-day natural gas market at
Houston Ship Channel during September, October and November 2008.
On 28 July 2011, FERC staff issued a Notice of Alleged Violations stating
that it had preliminarily determined that several BP entities fraudulently
traded physical natural gas in the Houston Ship Channel and Katy
markets and trading points to increase the value of their financial swing
spread positions. On 5 August 2013, the FERC issued an Order to Show
Cause and Notice of Proposed Penalty directing BP to respond to a FERC
Enforcement Staff report, which FERC issued on the same day, alleging
that BP manipulated the next-day, fixed price gas market at Houston Ship
Channel from mid-September 2008 to 30 November 2008. The FERC
Enforcement Staff report proposes a civil penalty of $28 million and the
surrender of $800,000 of alleged profits. BP filed its answer on 4 October
2013 denying the allegations and moving for dismissal. On 15 May 2014,
FERC denied the motion to dismiss and the matter has been set for a
hearing before an Administrative Law Judge in March 2015.
Canadian Natural Resource
The US Commodity Futures Trading Commission (CFTC) is currently
investigating certain practices relating to crude oil pipeline nominations
procedures on Canadian pipelines. On 17 November 2014, the CFTC
Enforcement Staff notified BP that it intends to recommend an
enforcement action naming certain parties, including several BP entities,
alleging violations of the anti-fraud and false reporting provisions of the
Commodity Exchange Act in connection with these nomination
procedures and related trades. On 17 December 2014 BP submitted a
detailed defence responding to the allegations in the notice and
challenging the CFTC’s jurisdiction over the alleged conduct.
Investigations by the FERC and CFTC into BP’s trading activities continue
to be conducted from time to time.
CSB matters
On 23 March 2005, an explosion and fire occurred at the Texas City
refinery. Fifteen workers died in the incident and many others were
injured. BP Products North America, Inc. (BP Products) has resolved all
civil injury claims and all civil and criminal governmental claims arising
from the March 2005 incident. In March 2007, the US Chemical Safety
and Hazard Investigation Board (CSB) issued a report on the incident. The
report contained recommendations to the Texas City refinery and to the
board of directors of BP. To date, the CSB has accepted that the majority
of BP’s responses to its recommendations have been satisfactorily
addressed. BP and the CSB are continuing to discuss the remaining open
recommendations with the objective of the CSB agreeing to accept these
as satisfactorily addressed as well.
OSHA matters
On 29 October 2009, the US Occupational Safety and Health
Administration (OSHA) issued citations to the Texas City refinery related
to the Process Safety Management (PSM) standard. On 12 July 2012,
OSHA and BP resolved 409 of the 439 citations. The agreement required
that BP pay a civil penalty of $13,027,000 and that BP abate the alleged
violations by 31 December 2012. BP completed these requirements and
the agreement has terminated. The settlement excluded 30 citations for
which BP and OSHA could not reach agreement. However, the parties
agreed that BP’s penalty liability will not exceed $1 million if those
citations are resolved through litigation. On 4 March 2014, the parties
reached agreement in relation to the remaining Texas City citations. The
agreement links the outcome of the remaining Texas City citations to the
ultimate outcome of the remaining Toledo citations (see below). If the
31 July 2013 decision of the Administrative Law Judge in relation to the
remaining Toledo citations is ultimately upheld, OSHA has agreed to
dismiss the remaining Texas City citations.
If the 31 July 2013 decision is ultimately overturned, BP has agreed to
pay a penalty not exceeding $1 million to resolve the remaining Texas
City citations.
On 8 March 2010, OSHA issued 65 citations to BP Products and BP-
Husky for alleged violations of the PSM standard at the Toledo refinery,
with penalties of approximately $3 million. These citations resulted from
an inspection conducted pursuant to OSHA’s Petroleum Refinery
Process Safety Management National Emphasis Program. Both BP
Products and BP-Husky contested the citations. The parties resolved
23 citations in a pre-trial settlement for an aggregate amount of $45,000.
A trial of the remaining 42 citations was completed in June 2012 before
Additional disclosures
BP Annual Report and Form 20-F 2014 237