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BP Will Plead Guilty and Pay Over $4 Billion

A version of this article appeared in print on November 16, 2012, on page A1 of the New York edition

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HOUSTON — BP, the British oil company, said on Thursday that it had agreed to pay $4.5 billion in fines and other penalties and to plead guilty to 14 criminal charges related to the rig explosion two years ago that killed 11 people and caused a giant oil spill in the Gulf of Mexico.

In a rare instance of seeking to hold individuals accountable for company misdeeds, the Justice Department also filed criminal charges against three BP employees in connection with the accident.

“This is unprecedented, both with regard to the amounts of money, the fact that a company has been criminally charged and that individuals have been charged as well,” Attorney General Eric H. Holder Jr. said at a news conference in New Orleans to announce the settlement.

The government said that BP’s negligence in sealing an exploratory well caused it to explode, sinking the Deepwater Horizon drill rig and unleashing a gusher of oil that lasted for months and coated beaches all along the Gulf Coast. The company initially tried to cover up the severity of the spill, misleading both Congress and investors about how quickly oil was leaking from the runaway well, according to the settlement and related charges.

While the settlement dispels one dark cloud that has hovered over BP since the spill, it does not resolve what is potentially the largest penalty related to the incident: the company could owe as much as $21 billion in pollution fines under the Clean Water Act f it is found to have been grossly negligent. Both the government and BP vowed to vigorously contest that issue at a trial scheduled to begin in February.

Under its deal with the Justice Department, BP will pay about $4 billion in penalties over five years. That amount includes $1.256 billion in criminal fines, $2.394 billion to the National Fish and Wildlife Foundation for remediation efforts and $350 million to the National Academy of Sciences. The criminal fine is one of the largest levied by the United States against a corporation.

BP also agreed to pay $525 million to settle civil charges by the Securities and Exchange Commission that it misled investors about the flow rate of oil from the well.

In addition, the company will submit to four years of government monitoring of its safety practices and ethics.

“All of us at BP deeply regret the tragic loss of life caused by the Deepwater Horizon accident, as well as the impact of the spill on the Gulf Coast region,” Robert W. Dudley, BP’s chief executive, said in a statement. “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.”

A broader settlement that would have resolved the Clean Water Act claims failed to win agreement from some parties, in particular the state of Louisiana. BP and the government now intend to go to trial on those claims in February.

The government charged the top BP officers aboard the drilling rig, Robert Kaluza and Donald Vidrine, with manslaughter in connection with each man who died, contending that the officials were negligent in supervising tests to seal the well.

Prosecutors also charged David Rainey, BP’s former vice president for exploration in the Gulf of Mexico, with obstruction of Congress and making false statements for understating the rate at which oil was spilling from the well.

As part of its plea agreement, BP admitted that, through Mr. Rainey, it withheld documents and provided false and misleading information in response to the House of Representatives’ request for information on how quickly oil was flowing. While Mr. Rainey was publicly repeating BP’s stated estimate of 5,000 barrels of oil a day, the company’s engineering teams were using sophisticated methods that generated significantly higher estimates. The Flow Rate Technical Group, consisting of government and independent scientists, later concluded that more than 60,000 barrels a day were leaking into the gulf during that time.

Lawyers for all three men charged denied that their clients had committed any criminal wrongdoing.

“This is not justice,” Mr. Kaluza’s lawyers, Shaun Clarke and David Gerger, said in a statement. “After nearly three years and tens of millions of dollars in investigation, the government needs a scapegoat.”

Mr. Holder, the attorney general, said that the government’s investigation was continuing and that other criminal charges could be filed.

Under the settlement announced on Thursday, BP agreed to plead guilty to 11 felony counts of misconduct or neglect related to the deaths in the explosion. The company pleaded guilty to one misdemeanor violation of the Clean Water Act and one misdemeanor violation of the Migratory Bird Treaty Act. It also agreed to plead guilty to one felony count of obstruction of Congress over its statements about the flow rate.

Shelley Anderson, whose husband, Jason, died in the Deepwater Horizon disaster, said she was happy to hear about the settlement. “I think it’s a good thing that BP has owned up to their responsibility,” she said.

But Ms. Anderson said the agreement did not change her own situation. “Everybody has asked about closure, closure, closure,” she said. “It’s not necessarily closure for us, because we still live every single day. We get up every single day and do it again. Life goes on.”

BP has repeatedly said it would like to reach a settlement of all claims against it if the terms were reasonable. The unresolved claims have been weighing on the company’s share price.

On Thursday, BP’s American shares closed at $40.30, up slightly on the day and down about 34 percent since the accident.

The settlement is “one less thing to be negative on BP about and a minor step in the right direction toward the rehabilitation of BP,” said Iain Armstrong, an equity analyst at the investment manager Brewin Dolphin in London. But he added that there were still concerns about the remaining claims, and that “lawyers might yet have their day at court.”

As part of Thursday’s announcement, BP said it was increasing its reserve for costs and claims related to the spill to about $42 billion.

Brian Gilvary, BP’s chief financial officer, said in a conference call with analysts that the board weighed the settlement struck with the government against the prospect of a much wider criminal indictment that would have involved more people in the company. “A criminal indictment would have been a huge distraction,” he said.

BP said that before Thursday’s announced payments, it spent more than $14 billion on operational response and cleanup costs and $1 billion on early restoration projects, and paid out more than $9 billion to individuals, businesses and government entities.

In March, BP agreed with the lawyers for plaintiffs to settle claims of economic loss, including from the local seafood industry, and medical claims stemming from the oil spill. The company said it expected that settlement to be an additional $7.8 billion, which it will pay from a trust it set aside to cover such costs.

Until this week, the only BP employee to be arrested and indicted was a low-level engineer, Kurt Mix, who has been charged with obstruction of justice for deleting text messages about company estimates of the flow rate from the spill. The government has asserted that in October 2010, Mr. Mix, of Katy, Tex., deleted from his smartphone a string of more than 200 messages with a supervisor about the flow rate estimated at the time of a failed effort to contain the spill. He is also accused of deleting a second string of messages with a contractor in August 2011.

Mr. Mix has pleaded not guilty to both counts of impeding a grand jury investigation, saying that the deletions were routine and that other records of the communications still existed.

David Yarnold, chief executive of the National Audubon Society, said Thursday’s settlement “matches the unprecedented offense BP committed.”

“But BP needs to compensate the Gulf Coast in the form of civil damages,” he said. “The rule has to be: You break it, you buy it.”

The company could still face billions of dollars in penalties under the Oil Pollution Act or the Clean Water Act. This possibility has spurred political jockeying between the Obama administration and Gulf Coast politicians who want to maximize the amount of money the states receive to help local communities affected by the spill.

Under the Clean Water Act, fines could range from $1,100 for every barrel spilled through simple negligence to as much as $4,300 a barrel if the company were found to have been grossly negligent. With an estimated 4.9 million barrels of oil spilled in the accident, the company faces liabilities of as much as $5.4 billion to $21 billion.

Gulf Coast lawmakers passed legislation called the Restore Act last summer under which 80 percent of fines paid by BP under the Clean Water Act would go to gulf communities.

The Justice Department could also levy fines under a provision of the Oil Pollution Act, in which case BP would face a bigger penalty — more than $31 billion — to repair damages. But BP would be allowed to take a tax deduction for damages paid, and federal agencies would control how the fine money was spent.

While the government will no longer be able to hold the threat of criminal charges over BP in negotiations about a civil fine, its quiver is not empty.

Brandon L. Garrett, a law professor at the University of Virginia who studies corporate prosecutions, said the government could still invoke the threat of “debarment,” or disqualification from getting federal contracts. Although debarment is rare, he said, “that could be a very large blow both to reputation and to business BP does with the federal government.”

Two other companies involved in the Gulf of Mexico accident, the rig operator Transocean and the cement contractor Halliburton, also face potential civil and criminal liabilities.

Representative Ed Markey, the Massachusetts Democrat who was chairman of the House committee that received false information from BP about the spill rate in 2010, said: “The Obama administration and the Department of Justice have held BP to the highest level of accountability that the law allows, including for their lies to Congress. Now it is up to Congress to enact laws that raise both the safety standards for offshore drilling and the liability cap for companies that still spill.”

Clifford Krauss reported from Houston and John Schwartz from New York. Contributing reporting were Julia Werdigier and Stanley Reed in London, Charlie Savage and John M. Broder in Washington and Campbell Robertson in New Orleans.

SOURCE

In BP Indictments, U.S. Shifts to Hold Individuals Accountable

A version of this article appeared in print on November 16, 2012, on page B1 of the New York edition

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HOUSTON — Donald J. Vidrine and Robert Kaluza were the two BP supervisors on board the Deepwater Horizon rig who made the last critical decisions before it exploded. David Rainey was a celebrated BP deepwater explorer who testified to members of Congress about how many barrels of oil were spewing daily in the offshore disaster.

Mr. Vidrine, 65, of Lafayette, La., and Mr. Kaluza, 62, of Henderson, Nev., were indicted on Thursday on manslaughter charges in the deaths of 11 fellow workers; Mr. Rainey, 58, of Houston, was accused of making false estimates and charged with obstruction of Congress. They are the faces of a renewed effort by the Justice Department to hold executives accountable for their actions. While their lawyers said the men were scapegoats, Attorney General Eric H. Holder Jr. said at a news conference, “I hope that this sends a clear message to those who would engage in this kind of reckless and wanton conduct.”

The defense lawyers were adamant that their clients would contest the charges, and prosecutors said that the federal investigations were continuing.

Legal scholars said that by charging individuals, the government was signaling a return to the practice of prosecuting officers and managers, and not just their companies, in industrial accidents, which was more common in the 1980s and 1990s.

“If senior managers cut corners, or if they make decisions that put people in harm’s way, then the criminal law is appropriate,” said Jane Barrett, a University of Maryland law professor and former federal prosecutor.

She noted that it was unusual for the Justice Department to prosecute individual corporate officers in recent years, including in the 2005 BP Texas City refinery explosion that killed 15 workers, where only the company was fined.

BP said on Thursday it would pay $4.5 billion in fines and other payments, and the corporation pleaded guilty to 14 criminal charges in connection with spill. The $1.26 billion in criminal fines was the highest since Pfizer in 2009 paid $1.3 billion for illegally marketing an arthritis medication.

The crew was drilling 5,000 feet under the sea floor 41 miles off the Louisiana coast in April 2010 when they lost control of the well during its completion. They tested the pressure of the well, but misinterpreted the test results and underestimated the pressure exerted by the flow of oil or gas up the well. Had the results been properly interpreted, operations would have ceased.

Mr. Vidrine and Mr. Kaluza were negligent in their reading of the kicks of gas popping up from the well that should have suggested that the Deepwater Horizon crew was fast losing control of the ill-fated Macondo well, according to their indictment, and they failed to act or even communicate with their superiors. “Despite these ongoing, glaring indications on the drill pipe that the well was not secure, defendants Kaluza and Vidrine again failed to phone engineers onshore to alert them to the problem, and failed to investigate any further,” the indictment said.

The indictment said they neglected to account for abnormal pressure test results on the well that indicated problems, accepting “illogical” explanations from members of the crew, which caused the “blowout of the well to later occur.”

In a statement, Mr. Kaluza’s lawyers said: “No one should take any satisfaction in this indictment of an innocent man. This is not justice.”

Bob Habans, a lawyer for Mr. Vidrine, called the charges “a miscarriage of justice.”

“We cannot begin to explain or understand the misguided effort of the United States attorney and the Department of Justice to blame Don Vidrine and Bob Kaluza, the other well site leader, for this terrible tragedy.”

Several government and independent reports over the last two years have pointed to sloppy cement jobs in completing the well or the poor design of the well itself as major reasons for the spill. But none of the three was indicted in connection with those problems.

Mr. Rainey was a far more senior executive, one who was known around Houston and the oil world as perhaps the most knowledgeable authority on Gulf oil and gas deposits. According to his indictment, Mr. Rainey obstructed Congressional inquiries and made false statements by underestimating the flow rate to 5,000 barrels a day even as millions were gushing into the Gulf.

The indictment contended that he relied on a Wikipedia entry for spill-testing methodologies. One method he found produced an estimate of as much as 92,000 barrels a day, but Mr. Rainey withheld that possible estimate, it said.

BP did not rely on Mr. Rainey’s estimates as it plotted various engineering responses to the accident, according to the indictment. Around April 22, 2010, the indictment said, only two days after the accident, BP engineers prepared estimates of potential flow rates that ranged as high as 146,000 barrels a day. A BP team on May 11 estimated a range of 14,000 to 82,000 barrels a day.

But when a university professor publicly released an estimate of 70,000 barrels a day in May 2010, based on video footage of the leak, the indictment said, BP continued to defend the 5,000-barrel-a-day estimate and Mr. Rainey prepared a memo for the unified command handling the disaster justifying the 5,000-barrel estimate. He did not include his own higher possible estimates or others by BP.

In presentations to Congressional committees, Mr. Rainey stuck to his 5,000-barrel estimate, the indictment said, even while he was receiving information that contradicted the figure.

“Rainey withheld such information from other BP employees and from BP in-house and outside lawyers with whom he was working,” the indictment said.

The charges against Mr. Kaluza and Mr. Vidrine carry maximum penalties of 10 years in prison on each “seaman’s manslaughter” count, eight years in prison on each involuntary manslaughter count and a year in prison on a Clean Water Act count.

Mr. Rainey faces a maximum of 10 years in prison.

In a statement on behalf of Mr. Rainey, his lawyers said: “We are profoundly disappointed that the Department of Justice is attempting to turn a tragic accident and its tumultuous aftermath into criminal activity. We are even more disappointed that BP has succumbed to the pressure and agreed to this extortionate settlement.” John Levy, a lawyer with experience in catastrophic accident cases, said the Justice Department was “clearly sending a message to all corporate executives that they have to be superdiligent, and I think it’s a growing trend.” He added, “You can’t put a corporation in jail.”

Campbell Robertson contributed reporting.

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