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BP temporarily banned from new U.S. contracts

WASHINGTON — The Obama administration temporarily banned the energy giant BP from new federal contracts, citing the company's "lack of business integrity as demonstrated" by the April 2010 Gulf of Mexico disaster.

The Environmental Protection Agency's decision Wednesday comes two weeks after BP entered into a wide-ranging settlement agreement with the Justice Department over criminal charges in connection with the Deepwater Horizon disaster, which killed 11 men and spewed nearly 200 million gallons of oil into the gulf.

The ban's impact on BP's financial health would depend on how long it lasts and whether it keeps BP from bidding on lucrative federal leases to tap oil and gas, said Phil Weiss, senior energy analyst for Argus Research. Hours after the ban was issued, the Interior Department announced a lease sale on more than 20 million offshore acres in the western gulf. BP did not participate.

"If it happens once, it's inconvenient for BP, but not that big of a deal," Weiss said. "If it happens twice, three times, then the impact starts to escalate. The best way to do deepwater is to get the acreage before it has been explored, when it is cheapest. Deepwater drilling is very important to BP, and that would have a big impact."

The EPA said such suspensions are "a standard practice when a responsibility question is raised by action in a criminal case." It said the suspension would be lifted when "the company can provide sufficient evidence to EPA demonstrating that it meets federal business standards."

In separate statements, the EPA and BP underscored that the temporary suspension would affect only future contracts, not existing leases to develop oil and gas in the United States, where BP's holdings are vast.

The company issued a statement that suggested it is working with the EPA to get the ban lifted soon. "The EPA's action is pursuant to administrative procedures providing for discretionary suspension until a company can demonstrate 'present responsibility' to conduct business with the U.S. government," BP said. "BP has been in regular dialogue with the EPA and has already provided both a present responsibility statement of more than 100 pages and supplemental answers to the EPA's questions based on that submission."

A separate federal lawsuit over possible violations of the Clean Water Act, set to proceed in February, could bring penalties in the billions of dollars against BP.

The idea of a temporary suspension of BP's access to federal contracts emerged during the early days of the oil spill crisis. BP has probably been in talks with the EPA since 2010 about the penalties it could face, said David M. Uhlmann, a former chief of the Justice Department's environmental crimes section and a law professor at the University of Michigan.

Uhlmann said the EPA suspension could not occur until criminal charges were filed. On Nov. 15, BP agreed to a settlement with the Justice Department under which it would plead guilty to 11 felony counts in connection with the deaths of the 11 rig workers and pay a record $4.5 billion fine.

Uhlmann said EPA suspensions are meant to give companies time to fix their problems, not punish them for past actions. Because the suspension comes almost three years after the disaster, BP has already had time to fix many problems, he said, which could mean the ban could be short.

"Although it's common for companies to face suspension or debarment when charged with environmental crimes, it is rare for major companies to be barred from government contracts for a significant length of time," Uhlmann said. "BP already has taken steps to address its problems. I would expect that sometime in 2013, the ban should be lifted."

BP temporarily banned from new U.S. contracts 11/28/12 [Last modified: Wednesday, November 28, 2012 11:51pm]
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