Breaking News: BP Settles with the US over Deepwater Horizon

Early this morning the New York Times reported that the US Department of Justice and British Petroleum were close to having agreed on a settlement arrangement for the variety of criminal charges and SEC violations that arose from the Deepwater Horizon incident. It did not take too long for the agreement to happen and pending court review BP has agreed to plead guilty to 11 felony counts of misconduct, 1 misdeamonor count under the Clean Water Act, 1 misdeamonor under the Migratory Bird Treaty Act, and 1 felony account for obstruction of Congress. In addition to the pleading of guilt BP has agreed to settle the claims for a penalty of $4.5 billion dollars and a term of 5 years probation.

I picked out a few key points from BP’s press release that may have an effect on energy, particularly deepwater drilling.

Pursuant to the terms of the plea agreement, BP has also agreed to take additional actions, enforceable by the court, to further enhance the safety of drilling operations in the Gulf of Mexico. These requirements relate to BP’s risk management processes, such as third-party auditing and verification, training, and well control equipment and processes such as blowout preventers and cementing. In addition, BP has agreed to several initiatives with academia and regulators to develop new technologies related to deepwater drilling safety.

The resolution also provides for the appointment of two monitors, both with terms of four years. A process safety monitor will review, evaluate and provide recommendations for the improvement of BP’s process safety and risk management procedures concerning deepwater drilling in the Gulf of Mexico. An ethics monitor will review and provide recommendations for the improvement of BP’s Code of Conduct and its implementation and enforcement.

With deepwater drilling such a prolific part of American oil production and attempts to be as energy independent as possible, this is an important step. Deepwater drilling is inherently dangerous and as we saw when things go wrong it can be absolutely catastrophic.

BP has taken significant steps to further enhance safety and risk management throughout its global operations. It launched an internal investigation immediately after the accident, publicly released the results, and has been implementing all 26 of the investigation’s recommendations. BP has also, among other things, made key leadership changes, reorganized its upstream business, created a centralized Safety and Operational Risk organization, and adopted new deepwater drilling standards in the Gulf of Mexico that exceed current regulatory requirements. BP has shared what it has learned with industry and regulators around the world.

The move to standards that exceed regulatory standards may also be a good sign n reducing the risks that come with deepwater drilling.

One thing to note from all of this is the extreme expense that has arisen from this event in relation to BP’s drilling practices, a $4.5 billion criminal settlement claim, along with a $20 billion dollar trust for all civil claims arising from the incident, and the additional costs that will arise from implementing these new features.

Whether these features will be preventative is yet to be seen, however, regardless, the fact that a resolution has arrived for BP’s actions is good and it will hopefully lead to future more responsible drilling practices and procedures across the whole industry.

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