EPA Officials Weighing Sanctions Against BP’s U.S. Operations

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ProPublica

EPA Officials Weighing Sanctions Against BP’s U.S. Operations

by
Abrahm Lustgarten

Officials at the Environmental Protection Agency are considering whether
to bar BP from receiving government contracts, a move that would
ultimately cost the company billions in revenue and could end its
drilling in federally controlled oil fields.

Over the past 10 years, BP has paid tens of millions of dollars in fines
and been implicated in four separate instances of criminal misconduct
that could have prompted this far more serious action. Until now, the
company's executives and their lawyers have fended off such a penalty by
promising that BP would change its ways.

That strategy may no longer work.

Days ago, in an unannounced move, the EPA suspended negotiations with
the petroleum giant over whether it would be barred from federal
contracts because of the environmental crimes it committed before the
spill in the Gulf of Mexico. Officials said they are putting the talks
on hold until they learn more about the British company's responsibility
for the plume of oil that is spreading across the Gulf.

The EPA said in a statement that, according to its regulations, it can
consider banning BP from future contracts after weighing "the frequency
and pattern of the incidents, corporate attitude both before and after
the incidents, changes in policies, procedures, and practices."

Several former senior EPA debarment attorneys and people close to the BP
investigation told ProPublica that means the agency will re-evaluate BP
and examine whether the latest incident in the Gulf is evidence of an
institutional problem inside BP, a precursor to the action called
debarment.

Federal law allows agencies to suspend or bar from government contracts
companies that engage in fraudulent, reckless or criminal conduct. The
sanctions can be applied to a single facility or an entire corporation.
Government agencies have the power to forbid a company from collecting
any benefit from the federal government in the forms of contracts, land
leases, drilling rights, or loans.

The most serious, sweeping kind of suspension is called "discretionary
debarment" and it is applied to an entire company. If this were imposed
on BP, it would cancel not only the company's contracts to sell fuel to
the military but prohibit BP from leasing or renewing drilling leases on
federal land. In the worst cast, it could also lead to the cancellation
of BP's existing federal leases, worth billions of dollars.

Present and former officials said the crucial question in deciding
whether to impose such a sanction is assessing the offending company's
culture and approach: Do its executives display an attitude of
non-compliance? The law is not intended to punish actions by rogue
employees and is focused on making contractor relationships work to the
benefit of the government. In its negotiations with EPA officials before
the Gulf spill, BP had been insisting that it had made far-reaching
changes in its approach to safety and maintenance, and that
environmental officials could trust its promises that it would commit no
further violations of the law.

EPA officials declined to speculate on the likelihood that BP will
ultimately be suspended or barred from government contracts. Such a step
will be weighed against the effect on BP's thousands of employees and
on the government's costs of replacing it as a contractor.

Even a temporary expulsion from the U.S. could be
devastating for BP's business. BP is the largest oil and gas producer in
the Gulf of Mexico and operates some 22,000 oil and gas wells across
United States, many of them on federal lands or waters. According to the
company, those wells produce 39 percent of the company's global revenue
from oil and gas production each year -- $16 billion.

Discretionary debarment is a step that government investigators have
long sought to avoid, and which many experts have considered highly
unlikely because BP is a major supplier of fuel to the U.S. military.
The company could petition U.S. courts for an exception, arguing that
ending that contract is a national security risk. That segment of BP's
business alone was worth roughly $4.6 billion over the last decade,
according to the government contracts website USAspending.

Because debarment is supposed to protect American interests, the
government also must weigh such an action's effect on the economy
against punishing BP for its transgressions. The government would, for
instance, be wary of interrupting oil and gas production that could
affect energy prices, or taking action that could threaten the jobs of
thousands of BP employees.

A BP spokesman said the company would not comment on pending legal
matters.

The EPA did not make its debarment officials available for comment or
explain its intentions, but in an e-mailed response to questions
submitted by ProPublica the agency confirmed that its Suspension and
Debarment Office has "temporarily suspended" any further discussion with
BP regarding its unresolved debarment cases in Alaska and Texas until
an investigation into the unfolding Gulf disaster can be included.

The fact that the government is looking at BP's pattern of incidents
gets at one of the key factors in deciding a discretionary debarment,
said Robert Meunier, the EPA's debarment official under President Bush
and an author of the EPA's debarment regulations. It means officials
will try to determine whether BP has had a string of isolated or perhaps
unlucky mistakes, or whether it has consistently displayed contempt for
the regulatory process and carelessness in its operations.

In the past decade environmental accidents at BP facilities have killed
at least 26 workers, led to the largest oil spill on Alaska's North
Slope and now sullied some of the country's best coastal habitat, along
with fishing and tourism economies along the Gulf.

Meunier said that when a business with a record of problems like BP's
has to justify its actions and corporate management decisions to the EPA
"it's going to get very dicey for the company."

"How many times can a debarring official grant a resolution to an
agreement if it looks like no matter how many times they agree to fix
something it keeps manifesting itself as a problem?" he said.

Documents obtained by ProPublica show that the EPA's debarment
negotiations with BP were strained even before the April 20 explosion on
the Deepwater Horizon rig. The fact that Doug Suttles, the BP executive
responsible for offshore drilling in the Gulf, used to head BP Alaska
and was the point person for negotiations with debarment officials
there, only complicates matters. Now, the ongoing accident in the Gulf
may push those relations to a break.

Discretionary debarment for BP has been considered at several points
over the years, said Jeanne Pascal, a former EPA debarment attorney who
headed the agency's BP negotiations for six years until she retired last
year.

"In 10 years we've got four convictions," Pascal said, referring to BP's
three environmental crimes and a 2009 deferred prosecution for
manipulating the gas market, which counts as a conviction under
debarment law. "At some point if a contractor's behavior is so egregious
and so bad, debarment would have to be an option."

In the three instances where BP has had a felony or misdemeanor
conviction under the Clean Air or Clean Water Acts, the facilities where
the accidents happened automatically faced a statutory debarment, a
lesser form of debarment that affects only the specific facility where
the accident happened.

One of those cases has been settled. In October 2000, after a felony
conviction for illegally dumping hazardous waste down a well hole to cut
costs, BP's Alaska subsidiary, BP Exploration Alaska, agreed to a
five-year probation period and settlement. That agreement expired at the
end of 2005.

The other two debarment actions are still open, and those are the cases
that EPA officials and the company have been negotiating for several
years.

In the first incident, on March 23, 2005, an explosion at BP's Texas
City refinery killed 15 workers. An investigation found the company had
restarted a fuel tower without warning systems in place, and BP was
eventually fined more than $62 million and convicted of a felony
violation of the Clean Air Act. BP Products North America, the
responsible subsidiary, was listed as debarred and the Texas City
refinery was deemed ineligible for any federally funded contracts. But
the company as a whole proceeded unhindered.

A year later, in March 2006, a hole in a pipeline in
Prudhoe Bay led to the largest ever oil spill on Alaska's North Slope --
200,000 gallons -- and the temporary disruption of oil supplies to the
continental U.S. An investigation found that BP had ignored warnings
about corrosion in its pipelines and had cut back on precautionary
measures to save money. The company's Alaska subsidiary was convicted of
a misdemeanor violation of the Clean Water Act and, again, debarred and
listed as ineligible for government income at its Prudhoe Bay pipeline
facilities. That debarment is still in effect.

That accident alone -- which led to congressional investigations and
revelations that BP executives harassed employees who warned of safety
problems and ignored corrosion problems for years -- was thought by some
inside the EPA to be grounds for the more serious discretionary
debarment.

"EPA routinely discretionarily debars companies that have Clean Air Act
or Clean Water Act convictions," said Pascal, the former EPA debarment
attorney who ran the BP case. "The reason this case is different is
because of the Defense Department's extreme need for BP."

Instead of a discretionary debarment, the EPA worked to negotiate a
compromise that would bring BP into compliance but keep its services
available. The goal was to reach an agreement that would guarantee that
BP improve its safety operations, inspections, and treatment of
employees not only at the Prudhoe Bay pipeline facility, but at its
other facilities across the country.

According to e-mails obtained by ProPublica and several people close to
the government's investigation, the company rejected some of the basic
settlement conditions proposed by the EPA -- including who would police
the progress -- and took a confrontational approach with debarment
officials.

One person close to the negotiations said he was confounded by what he
characterized as the company's stubborn approach to the debarment
discussions. Given the history of BP's problems, he said, any
settlement would have been a second chance, a gift. Still, the e-mails
show, BP resisted.

As more evidence is gathered about what went wrong in the Gulf, BP may
soon wish it hadn't.

It's doubtful that the EPA will make any decisions about BP's future in
the United States until the Gulf investigation is completed, a process
that could last a year. But as more information emerges about the causes
of the accident there -- about faulty blowout preventers and hasty
orders to skip key steps and tests that could have prevented a blowout
-- the more the emerging story begins to echo the narrative of BP's
other disasters. That, Meunier said, could leave the EPA with little
choice as it considers how "a corporate attitude of non-compliance"
should affect the prospect of the company's debarment going forward.

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