Oil rig explodes in Gulf of Mexico

As part of BP's settlement of criminal charges, prosecutors said BP had agreed to plead guilty to felony manslaughter, environmental crimes and obstruction of Congress, and would pay the record $4 billion in criminal fines and penalties.

About $2.4 billion of that will go to environmental restoration in the gulf. The company will pay an additional $525-million civil penalty to the Securities and Exchange Commission for misrepresenting the size of the spill in SEC filings.

Robert M. Kaluza, 62, of Henderson, Nev., and Donald J. Vidrine, 65, of Lafayette, La. — the highest-ranking BP supervisors on board that night — were charged with 11 felony counts of seaman's manslaughter, 11 felony counts of involuntary manslaughter and one violation of the Clean Water Act in a federal indictment unsealed Thursday. Rainey, 58, of Houston, a former BP executive who helped oversee the spill response, was charged with obstruction of Congress and making false statements to law enforcement officials.

Lawyers for Kaluza blasted the government case. "After nearly three years and tens of millions of dollars in investigation, the government needs a scapegoat," attorneys Shaun Clarke and David Gerger said in a statement. "Bob was not an executive or high-level BP official. He was a dedicated rig worker who mourns his fallen co-workers every day."

At the height of the spill, then-BP Chief Executive Tony Hayward was forced to step down, in part for commenting, "I'd like my life back," during the frenetic cleanup period when oil was washing ashore in Louisiana and many livelihoods were in ruins.

In a statement, Bob Dudley, BP's current chief executive, said the company deeply regretted the loss of life. "From the outset, we stepped up by responding to the spill, paying legitimate claims and funding restoration efforts in the gulf. We apologize for our role in the accident, and as today's resolution with the U.S. government further reflects, we have accepted responsibility for our actions."

Chris Jones, whose younger brother Gordon Jones died in the fiery explosion, was not satisfied with BP's mea culpa.

"The fact that BP is finally admitting that it is responsible is not shocking; the amount of money it is paying in fines is not shocking," said Jones, a litigation attorney in Baton Rouge, La. "What is shocking is that it has been three years since this happened and not once has a representative of BP said to us, 'I'm sorry for your loss.' It's par for the course."

"BP is simply going to sign a check for billions of dollars, then continue to do business in U.S. waters and make money for its shareholders," he said. "But Gordon wasn't able to live a day after April 2010."

British BP can easily absorb the $4.5-billion settlement, analysts said.

In the third quarter alone, BP raked in sales of more than $93 billion and had a net profit of more than $5.2 billion. That shows that "BP has made the most remarkable comeback from the most costly industrial accident in history," Fadel Gheit, senior energy analyst at Oppenheimer & Co., said in a note to investors.

In addition, BP has raised $35 billion from asset sales, including a $2.5-billion proposal to sell its Carson refinery and other assets.

BP's recent business performance has been so strong that some critics said the fine wasn't punishment enough.

"This settlement is pathetic," said Tyson Slocum, director of the energy program at Public Citizen, a consumer advocacy group. "The point of the criminal justice system is twofold: to punish and to deter. This does neither. It is a weak-tea punishment that provides zero deterrence to BP or other companies."

What remains unclear is how the settlement will affect BP's business in the U.S., particularly in the Gulf of Mexico. The company has seven rigs drilling in the gulf and plans to add an eighth and possibly a ninth next year.

BP appeared to acknowledge the uncertainty in a statement: "Under U.S. law, companies convicted of certain criminal acts can be debarred from contracting with the federal government. BP has not been advised of the intention of any federal agency to suspend or debar the company in connection with this plea agreement. BP will continue to work cooperatively with the debarment authority."

The size of the spill was vehemently disputed early in the disaster. Environmentalists accused BP of greatly underestimating the rush of oil into the gulf, and the federal government also came under fire for releasing low flow estimates that were revised upward several times during the spill.

The spill volume was not just a matter of gauging environmental harm, it also had financial implications: The more oil released, the greater the civil penalties BP faced under federal environmental law.

"BP lied to me," Rep. Edward J. Markey (D-Mass.) said Thursday at a Capitol Hill news conference. "And they lied to all Americans.

"They were deliberately low-balling the number because their liability is directly tied to the number of barrels of oil that flow into the ocean. They deserve this record-breaking penalty."

Sen. Bill Nelson (D-Fla.) said in a statement that he was pleased that the Justice Department "brought the hammer down on BP.… Now that this is worked out, it's time to move on to the civil side of things and get Gulf Coast residents every cent they deserve."

Congress held a spate of high-profile hearings after the spill. Rainey, BP's vice president of exploration in the gulf, met with congressional investigators at a May 2010 briefing held by Markey, then chairman of a House subcommittee on energy and the environment.

"Rainey allegedly cherry-picked pages from documents, withheld other documents altogether and lied to Congress and others to make this spill appear less catastrophic than it was," Assistant Atty. Gen. Breuer said.

David Uhlmann, former head of the environmental crimes section at the Justice Department, characterized the fine, although unprecedented, as "on the low end of the acceptable range."

"When you look at $4.5 billion alongside the tens of billions of dollars of harm that was caused by the gulf oil spill and the tragic loss of life on the Deepwater Horizon, it's hard to escape the conclusion that today's settlement is a relatively modest financial penalty for BP," Uhlmann said.

Uhlmann, a professor at the University of Michigan Law School, said he found the manslaughter charges against the BP rig supervisors "troubling" and predicted the case could face a stiff challenge in court.

"The question in my mind is whether a criminal charge would have been better reserved for those at least a few rungs higher up the ladder, not a team leader on a drill rig 70 miles in the Gulf of Mexico," Uhlmann said. "They were not the ones responsible for BP's terrible corporate culture for compliance and safety issues."

Some conservation groups also called the fine insufficient.

"We feel that this is a slap on the wrist, an insult to people of the gulf, rig workers and others who are trying to rebuild their lives," said Jill Mastrototaro, the Gulf Coast director for the Sierra Club. "Here on the ground, we still have lingering health concerns, oil is still washing up on shore, there is still a sheen at the well site."

As part of the criminal settlement, Transocean also agreed to pay the National Academy of Sciences and the National Fish and Wildlife Foundation $150 million each. Those funds will be applied to oil spill prevention and response in the Gulf of Mexico and natural resource restoration projects. The agreement will be subject to public comment and court approval. The company agreed to five years of monitoring of its drilling practices and improved safety measures.

In a statement, Transocean Ltd., the Switzerland-based parent of the rig owner, said that the company thought these were “important agreements” and called them a “positive step forward” that were “in the best interest of its shareholders and employees.” Of the 11 men killed on the rig, the company said, “their families continue to be in the thoughts and prayers of all of us at Transocean.”

The company announced in September that it had set an “estimated loss contingency” of $1.5 billion against the Justice Department’s claims.

Shares of Transocean Ltd. rose nearly 3 percent on the news, to close at $49.20.

In a statement, Lanny A. Breuer, assistant attorney general for the Justice Department’s Criminal Division, suggested that Transocean had played a subservient and lesser role in the disaster to that of BP: “Transocean’s rig crew accepted the direction of BP well site leaders to proceed in the face of clear danger signs — at a tragic cost to many of them.” He said that the $1.4 billion “appropriately reflects its role in the Deepwater Horizon disaster.”

Under a law passed last year, 80 percent of the penalty will be applied to projects for restoring the environment and economies of gulf states.

That fact was applauded by a coalition of Gulf Coast restoration groups, including the Environmental Defense Fund and the National Audubon Society. A joint statement called this “a great day for the gulf environment and the communities that rely on a healthy ecosystem for their livelihoods.”

Still, the penalty struck some experts in environmental law as somewhat light. David M. Uhlmann, who headed the Justice Department’s environmental crimes section from 2000 to 2007, praised the size of the civil settlement, which he said “reflects the scope of the gulf oil spill tragedy.”

He argued, however, that the criminal penalty should have been at least as onerous, “given Transocean’s numerous failures to drill in a safe manner, which cost 11 workers their lives and billions of dollars in damages to communities along the gulf.” The settlement, he said, should have included seaman’s manslaughter charges, which were part of the BP settlement.

As for the company’s role in following the lead of BP, he said, “following orders is not a defense to criminal charges.”

At the Environmental Protection Agency, Cynthia Giles, assistant administrator for the office of enforcement and compliance assurance, called the settlement “an important step” toward holding Transocean and others involved in the spill accountable. “E.P.A. will continue to work with D.O.J. and its federal partners to vigorously pursue the government’s claims against all responsible parties and ensure that we are taking every possible step to restore and protect the Gulf Coast ecosystem,” she said.

The multistate trial over claims in the Deepwater Horizon cases that have not been settled are scheduled to begin in February. Stephen J. Herman and James P. Roy, lawyers who represent the steering committee of plaintiffs in the cases, said that Thursday’s settlement did not change the case, and that the plaintiffs thought that BP, Transocean and Halliburton “will be found grossly negligent” at trial.

BP continued its longstanding argument that the accident, in the words of the spokesman Geoff Morrell, “resulted from multiple causes, involving multiple parties,” and that other companies had to shoulder their share of the blame.

Transocean, Mr. Morrell said in a statement, “is finally starting, more than two-and-a-half years after the accident, to do its part for the Gulf Coast.” He then turned his attention to the other major contractor on the well, and said, “Unfortunately, Halliburton continues to deny its significant role in the accident, including its failure to adequately cement and monitor the well.”

Beverly Blohm Stafford, a Halliburton spokeswoman, said that the company “remains confident that all the work it performed with respect to the Macondo well was completed in accordance with BP’s specifications for its well construction plan and instructions,” and so Halliburton, she said was protected from liability through indemnity provisions of its drilling contract.

“We continue to believe that we have substantial legal arguments and defenses against any liability and that BP’s indemnity obligation protects us,” she said. “Accordingly we will maintain our approach of taking all proper actions to protect our interests.”

“Reckless actions were tolerated by BP, sometimes encouraged by BP,” said Michael Underhill, the Justice Department’s lead prosecutor. “These damages were caused by actions that cannot be seen as anything but inexcusable behavior.”

Mr. Underhill discussed a phone call between Donald Vidrine, a BP supervisor on the rig who faces criminal charges, with Mark Hafle, an onshore engineer, in which Mr. Vidrine described problems with a critical test less than an hour before the explosion. Neither man took action to prevent the eventual blowout.

“They had a conversation that could have saved 11 lives, saved the gulf, saved the people of the gulf from catastrophe,” Mr. Underhill said.

If federal and state officials are successful in proving gross negligence against BP in its handling of the spill, the fines against the company will be four times as high as under a lower standard of liability, negligence.

BP’s lawyer, Robert C. Brock, defended the company’s design of the well and denied that the company had been grossly negligent. He characterized the drilling of a well as a team effort in which the company and its contractors — Halliburton and Transocean, who also are defendants — all needed to take responsibility.

“Everyone on the rig is empowered to say stop the job,” Mr. Brock said. “There were no dictators in this group.”

The settlement proposal would cap the amount of fines that BP might pay for violations of the Clean Water Act to $6 billion, significantly less that it might face if the trial proceeds. The proposal would allow BP to pay an additional $9 billion to resolve environmental penalties related to the spill, an alternative that would lessen the impact on the company’s tax liabilities. The environmental penalties, under separate laws, are tax deductible, while fines like those imposed under the Clean Water Act are not.

The remaining $1 billion would be put in a fund for unanticipated environmental damages from the spill.

One lawyer, who was briefed on the settlement talks, said on Monday that discussions were still under way. Another lawyer, also briefed on the efforts, said that a number of people who were scheduled to appear as trial witnesses have been told that their testimony might not be needed.

The frequently intense opening arguments in court on Monday, however, outlined an extravagance of errors.

Several referred to one Halliburton technician who missed important signs that the well was on the verge of blowing out when he took a 10-minute cigarette break during a safety test. In one of the e-mail exchanges between two BP workers discussing problems with the well, one of the two wrote that he had to leave for a dance class and would get back to him.

Transocean employees came up with a theory they called “the bladder effect” to explain a failed 11th-hour test showing pressure building in a drill pipe that otherwise should have stopped all operations and averted the blowout.

But it was BP that was the central focus of the day’s proceedings.

Lawyers for the Justice Department, two gulf states and private plaintiffs mounted scathing attacks on the company for ignoring multiple signs of problems on the rig in routine maintenance of safety tests and equipment.

In several hours of arguments, they noted numerous errors by BP in managing a high-pressure well. The company had decided to employ single-walled drill pipe, which provided inferior barriers to leaks, and it decided that it was not necessary to circulate drilling mud, a method intended to strengthen cement, before installing a seal on the well.

They reminded the court that BP had decided against conducting a cement bond test, which is an acoustics test that could have identified the gas that leached into the piping during the well-cementing process.

And finally, using information that has previously been described in numerous government and private reports since the accident, they said BP had ignored the results of a failed pressure test shortly before the well blew out.

Mr. Brock, representing BP, said the well design followed industry standards.

“There were a number of mistakes and misjudgments that were made by BP, Transocean and Halliburton,” he said. He argued that Transocean was responsible for maintenance and operations of the rig it owned, and Halliburton was responsible for designing and testing the cement to seal the well.

Lawyers for both Transocean and Halliburton said that their companies were following BP’s lead, and that it was BP that was overwhelmingly responsible for the accident.

This is the first trial phase of a two-part case. The second phase is intended to determine how much oil was actually spilled. The federal government estimates that more than four million barrels of oil spilled from the Macondo well, covering birds with tarry crude and extending a slick across nearly 30,000 square miles of the gulf.

BP says the government’s estimate is at least 20 percent too high.

Last November, BP agreed to pay $4.5 billion in fines and other penalties and pleaded guilty to 14 criminal charges related to the accident. It has also paid out $9 billion in a partial settlement with businesses, individuals and local governments. The company has set aside $42 billion for payouts, largely by selling $38 billion of global oil and gas assets.

Four of its employees face criminal charges of manslaughter and obstruction of justice or are accused of making false statements related to how much oil was escaping the well.

The government and Transocean have already come to a $1 billion civil settlement, and the rig company will pay an additional $400 million criminal penalty. Halliburton has not settled yet and says that it has no liability under contracts signed with BP, but it may yet be held liable for punitive damages or civil penalties under the Clean Water Act.