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BP Owes $192 Billion for Gulf Oil Disaster, Not $15 Billion Settlement It's Seeking

While $15 billion sounds like a lot of money -- and it is -- it is a far cry from what BP owes for the many costs associated with the largest offshore oil spill in history. An application of just the most pertinent U.S. laws yields a fine of $192 billion. Sound high? Here's why it's not.
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On Friday, the Financial Times reported that BP is hoping to reach an agreement with U.S. authorities which would require it to pay under $15 billion to settle all criminal and civil penalties arising from the 2010 Gulf oil disaster. The Department of Justice is reportedly seeking $20 to $25 billion. Negotiations between the DOJ and BP are accelerating and "an agreement could be reached before the Democratic party's convention in September," the FT reported.

While $15 billion sounds like a lot of money -- and it is -- it is a far cry from what BP owes for the many costs associated with the largest offshore oil spill in history. To date, a full accounting of exactly what BP should owe for its crimes in the Gulf has not been made public. Such an accounting is vital if we are to ensure that justice and restoration are delivered to the Gulf Coast and that such a catastrophe never occurs again.

A straightforward application of just the most pertinent U.S. laws yields a fine of $192 billion. (For simplicity sake, I only address BP's fines.)

Sound high? Here's why it's not.

Seaman's Manslaughter Statute = $2.75 - $5.5 million

Eleven men died aboard the Deepwater Horizon: Gordon Jones, Dewey Revette, Jason Anderson, Shane Roshto, Stephen Curtis, Blair Manuel, Karl Kleppinger, Adam Weise, Don Clark, Roy Kemp, and Aaron Dale Burkeen. Title 18 Section 1115 of the U.S. Criminal Code, the "Seaman's Manslaughter Statute," holds companies, executives, managers, and employees of vessels liable for fines and imprisonment for deaths occurring on their rigs. Simple negligence (not intent) is enough to secure a conviction. The conclusions of numerous critical investigations make negligence a forgone conclusion in this case. Criminal penalties include up to 10 years imprisonment per violation and fines. Individual fine: $250,000 per violation x 11 = $2.75 million. Company fine: $500,000 x 11 = $5.5 million.

Clean Water Act: $30.5 billion

Clean Water Act (CWA): "... no discharges of oil or hazardous substances into or upon the navigable waters of the United States..." "Hazardous substances" are "... such elements and compounds which, when discharged in any quantity... present an imminent and substantial danger to... including, but not limited to, fish, shellfish, wildlife..."

4.9 million barrels of oil was released from the Macondo well, while .8 million barrels were captured at wellhead, and therefore did not escape into the water. The CWA imposes a fine of $1,100 per barrel for the mere act of spilling oil into the water. A spill that is the result of negligence, as is the case here, entails a $4,300 per barrel spilled fine is imposed. 4.1 million barrels of oil x $4,300 per barrel = $17.63 billion.

500,000 tonnes of gaseous hydrocarbons (including methane gas) were also released (3 million barrels of oil equivalent). Just as excessive oil is a hazardous pollutant, so too is excessive gas which depletes the oxygen Gulf waters need to support life, such as fish, shellfish, and wildlife. 3 x $4,300 per barrel = $12.9 billion.

Alternative Fines Act (AFA)
Dr. David Uhlmann, former head of the U.S. Department of Justice Environmental Crimes Section, argues for criminal charges against BP under the CWA, making BP liable under the Alternative Fines Act (AFA) to be fined double the losses caused. Dr. Uhlmann argues for application of the AFA to at least all economic losses and natural resource damages.

Outer Continental Shelf Lands Act: $37 million

The Interior Department cited BP for 12 violations of drilling rules @ $35,000 per violation for 87 days = 36.54 million.

To calculate fines under the Endangered Species, Marine Mammal Protection, and Migratory Bird Treaty Acts below, I used the latest data on species deaths provided by the U.S. Fish and Wildlife Service and the National Oceanographic and Atmospheric Association, supplemented by "A Deadly Toll: The Gulf Oil Spill and the Unfolding Wildlife Disaster," Center for Biological Diversity, April 2011. I use the latter to provide "multipliers" to account for estimates of the dead not found versus those recovered. I apply the highest possible fines, criminal charges, because this is a "knowing" offense: BP and its partners took so many risks that they knew such a disaster might reasonably occur.

Endangered Species Act: $284 million

Approximately 5680 injured or dead endangered or threatened species, including 100 sperm whales and over 6,000 sea turtles. @ $50,000 each = $284 million.

Marine Mammal Protection Act: $60 million

Data from April 2011 finds 26,000 marine mammals directly injured or killed. But hundreds more dolphins have since been found. Applying the standard multiplier for those impacted but still at sea, 30,000 is more likely. @ $20,000 fine per impacted mammal = $60 million.

Migratory Bird Treaty Act: $9.4 million

Some 82,000 birds were identified as injured or dead, including more than 8,200 brown pelicans and 30,000 Laughing Gulls. The species of some 6,000 birds was unknown, and therefore it is unknown if they are migratory.

The Migratory Bird Treaty Act: 73 bird species harmed by spill are migratory, totaling 18,770 birds, including nearly 5,000 Northern Gannets, 3,000 Royal Terns and 220 Snowy Egrets. @ $500 per bird = $9.4 million.

Oil Pollution Act (OPA) = $152 Billion

Under the 1990 OPA, BP is responsible for stopping the spill; cleaning up the pollution; a Natural Resource Damage Assessment (NRDA); full environmental restoration; and full victim compensation.

Natural Resource Damage Assessment: $62 billion ($31B x 2 [AFA])
The NRDA process is underway and we will not know for decades the full impact of the disaster. Thus, for numbers, I turn to the National Wildlife Federation which used the Exxon Valdez settlement as precedent. Exxon paid $152 (adjusted for inflation) per-gallon of oil spilled for restoration. $152 x 4.1 million barrels of oil = $31 billion.

This may be an extreme underestimation. While the oil carried by the Valdez was heavier and more polluting and the weather colder and therefore less likely to allow the oil to evaporate, BP's spill was nearly 20 times larger; impacted five states, each with much larger populations than Alaska; harmed a much larger, more fragile, and diverse ecosystem; took place for a significantly longer period of time; and involved dramatically more chemical dispersant. Moreover, after 30 years, restoration in the Prince William Sound has not been achieved.

Economic Loss: $79 billion ($39.7B x 2 [AFA])

Fisheries = $30 billion
From 2009 to 2010, in Louisiana and Mississippi, oyster production fell 55% and 34%, respectively; shrimp declined in Mississippi by 52%, in Alabama by 48%, and in Louisiana, by 14%. 2011 data is not yet available, but, as I reported in the Progressive Magazine in April, fishers report that things are getting much worse, with production of some crops reportedly down by as much as 80% in the hardest hit areas. The outlook is grim for recovery in the near term and many experts worry that some species may never fully recover. In Prince William Sound Alaska, for example, herring fisheries all but disappeared in the wake of the Valdez spill.

The Congressional Research Service reports that in 2008, the Gulf commercial fishing industry supported over 213,000 jobs with related income impacts of $5.5 billion. Additionally, recreational fisheries supported numerous businesses and spent over $12.5 billion on durable equipment and trips in the Gulf. Combined, Gulf seafood and recreational fishing industry = $18 billion a year business.

I conservatively estimate that just one third of the industry will be out for just five years = $30 billion.

Tourism = $9.7 billion
According to Oxford Economics, visitors to Congressional Districts along the Gulf coast spent in excess of $34 billion in 2008, sustaining 400,000 jobs. In an extensive analysis of past disasters affecting tourism destinations, including oil spills, the group estimated in July 2010 (after the well was caped) the possible costs to tourism at $22.7 billion over three years. It estimates a cost reduction of $7.5 billion if BP spent $500 million on tourism marketing. BP has spent $179 million on such advertising. The report, however, overestimates the tourist areas of Florida impacted by the spill.

Taking these elements into account yields a final estimate of $9.7 billion over three years.

Economic Loss - Human Health: $20 billion ($10 x 2 [AFA])

More than 21 million people live along the U.S. Gulf Coast. As I reported in The Nation in May, in the wake of the disaster, acute health problems have been widely reported across the Gulf and doctors and researchers predict a host of chronic ailments. The most common acute problems are headaches; nausea; respiratory problems, irritated eyes, nose, throat, and lungs; and asthma attacks. Others report a "BP rash" of itchy, peeling, irritated and even burned skin and neurological effects, dubbed "BP moments," include dizziness, forgetfulness, and confusion. Extreme health impacts including excessive bleeding from nose, ears, breasts, urinary tract, and anal canal; heart irregularities; and dementia are also reported. Expected chronic impacts include, respiratory ailments, developmental disorders for fetuses and children, neurological disorders, cancers, liver and kidney disease, and mental health disorders.

The proposed Medical Benefits Settlement with BP severely underestimates the potential impacted population and includes just an estimated 200,000 people. It does not, however, include a financial cap.

I estimate the health costs, which are expected to last for decades, at just one quarter the broader financial toll: $10 billion.

The Gulf oil spill is the largest ecological disaster in U.S. history and the world's largest offshore oil spill. The failures that led to this disaster are not only endemic of BP, Transocean, Halliburton, and their other Macondo partners, but they permeate the entire offshore oil industry, which has pushed beyond its own technological capacity in pursuit of profit. Fortunately, we have laws that not only punish these actions, provide for restoration and restitution, but are also designed to deter such risky and destructive activities in the future. If BP is not held to the law, than the costs of such dangerous operations will invariably be once again outweighed by the benefits.

Antonia Juhasz is a leading oil and energy analyst who has written extensively on the BP Gulf oil spill. She is the author of several books, including Black Tide: the Devastating Impact of the Gulf Oil Spill (Wiley, 2011). With support from The Investigative Fund of the Nation Institute, she wrote the cover article of The Nation in May, "Investigation: Two Years After the BP Spill, A Hidden Health Crisis Festers." She also wrote the cover article of the Progressive Magazine in April, "BP Oil Still Tars the Gulf." She spent much of 2010 embedded within those communities most impacted by the spill.

With research by Lindsey Ingraham and Amit Srivastava.