The federal government and rig owner Transocean both walked away winners last week in settling criminal and civil claims stemming from the 2010 oil spill in the Gulf of Mexico. The government won a record fine under the Clean Water Act, while the company removed a cloud over its operations for what was widely seen as a bargain price. It was a reasonable resolution that will speed the gulf's recovery and improve the safety of offshore drilling.
The Transocean-owned rig Deepwater Horizon exploded and sank in April 2010 as oil giant BP drilled the Macondo well. The blowout claimed the lives of 11 workers and spilled more than 200 million gallons of oil into the gulf. Under the deal, Transocean — which leased the rig to BP — agreed to plead guilty to one misdemeanor violation of the Clean Water Act for its failure to investigate clear indications that the well was unstable. The company agreed to pay $1.4 billion in civil and criminal fines and to implement new measures to improve safety operations and emergency response capabilities at all its drilling rigs in U.S. waters.
The $1 billion penalty under the Clean Water Act is a record amount, an appropriate fine for the largest oil spill in American history. The company will pay a criminal penalty of $100 million, plus an additional $300 million equally divided between the National Academy of Sciences and the National Fish and Wildlife Foundation. Transocean also agreed to continue cooperating with the government's criminal investigation.
The combined penalties are somewhat light; even as of last year, Transocean had budgeted $1.5 billion to cover any claims made by the Justice Department. Still, the agreement gets money to the gulf immediately to help repair the damage. While the fines would be paid over five years, the settlement frontloads the vast majority of the payments between now and 2015. Thanks to the recently passed Restore Act, 80 percent of the penalties will be used to pay for projects in and for the gulf states. The funds paid to the academy and the wildlife foundation will go for oil spill prevention and response efforts and for gulf-area habitat restoration projects. The deal also reserves federal claims for environmental damages and cleanup costs.
The substantial penalties and the expedited timetable for getting restoration money into the pipeline make this a good deal for the public. Having the world's largest offshore drilling contractor change its practices to improve operational safety also will have a beneficial impact throughout the industry. BP, Transocean and its partners still face a range of civil claims associated with the spill. But the government is doing a good job holding these firms responsible and fostering a new culture of safety.