In a letter sent to BP earlier this month, Texas Governor Rick Perry and Attorney General Greg Abbott say that BP General Counsel Jack Lynch told them that the reason BP wasn't limiting claims to the statutory cap of $75 million was that gross negligence led to the disastrous explosion of the Deepwater Horizon drilling rig.
"Finally, we note that your letter states: 'We have not asserted the cap provided under the Oil Pollution Act,'" Perry and Abbott say in reference to BP's statement it wouldn't invoke the post-Exxon-Valdez law that limits a company's spill related liabilities to $75 million. "We read that as an attempt to suggest that BP is voluntarily paying claims associated with the oil spill. The truth is that BP has not asserted the cap because it acknowledged that evidence would reveal that the explosion and resulting spill were the product of gross negligence -- which renders the statutory cap irrelevant. We know this because, during a conference call with Gulf Coast attorneys general, BP General Counsel Jack Lynch acknowledged that gross negligence would be revealed as a cause of the explosion that led to the oil spill."
Such a finding would be significant not only because it would render the $75 million cap moot, but because it would also quadruple the fine-per-barrel that the government could assess on BP. The Houston Chronicle runs the numbers:
If the courts find BP was negligent in activities that caused the Gulf of Mexico oil spill it's fines could nearly quadruple.
• Per barrel fines under the Clean Water Act
• Without gross negligence: $1,100
• With gross negligence: $4,300
• Size of total fines assuming 55,000 barrel-per-day spill rate
• $5 billion without negligence finding
• $19.6 billion with negligence finding
Not surprisingly, BP is now publicly denying that Lynch ever told Perry or Abbott that BP would be found guilty of gross negligence. Call me bipartisan, but this is one scenario where I actually believe Perry and Abbott, both of whom are Republicans.
Interesting note: in explaining why it believes it is entitled to a $10 billion tax deduction bailout to defray the costs of the spill, BP includes among its expenses $5 billion in fines, tallied at $1,100 per barrel, the per barrel rate if they are not found guilty of gross negligence. If they are found guilty of negligence, that fine would rise to nearly $20 billion, but from BP's perspective, the upside would be that they believe that they'd be entitled to a larger tax deduction bailout. Of course, that assumes BP is able to get its hands on a bailout in the first place: legislation is on its way to make sure they can't profit from the spill. Let's hope it gets passed quickly.