EPA suspends BP from new federal contracts in wake of oil spill

The Environmental Protection Agency has suspended BP from bidding on any new federal contracts, including drilling leases, as a result of the company’s conduct during the Deepwater Horizon oil rig disaster in 2010 that led to 11 deaths and the largest U.S. offshore spill.

The temporary ban came early on the day the Interior Department held a sale of leases on 20 million acres of offshore oil and gas prospects in the western Gulf of Mexico that the department said attracted $133 million in bids. People familiar with the process said the company did not submit any bids.

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The EPA said the suspension will not affect BP’s current contracts or leases, which are crucial to the company. The London-based oil giant is the largest leaseholder in the deep-water Gulf of Mexico, with more than 700 leases, and it is the gulf’s largest producer of oil and gas, from more than 20 fields there. It won 40 new leases in June.

In 2011, BP was also the largest supplier of fuel to the U.S. military, with contracts worth about $1.35 billion.

The EPA move follows BP’s agreement to settle criminal charges for $4.5 billion, the largest such payment ever in a criminal settlement with the Justice Department and the Securities and Exchange Commission.

Although the EPA did not say how long the ban will last, regulations generally limit such suspensions to 18 months. However, it could last until the end of legal proceedings, and BP and the Justice Department are still locked in a dispute over civil charges tied to the oil spill. It could also lead to “debarment,” which could last longer.

The EPA said the suspension could be lifted when “the company can provide sufficient evidence to EPA demonstrating that it meets Federal business standards.”

Some investment analysts say the EPA action might be part of the administration’s effort to pressure BP to agree soon to a settlement of civil charges.

The next Gulf of Mexico lease sale is March 20; it will offer up 38 million acres off Louisiana, Mississippi and Alabama.

People close to the company said BP was surprised by Wednesday’s action. BP said “it has been in regular dialogue with the EPA” and has submitted a “responsibility statement of more than 100 pages and supplemental answers to the EPA’s questions based on that submission.” BP said the EPA had told the company that it was preparing a “proposed administrative agreement” that could resolve and lift the suspension.

Fadel Gheit, an oil analyst with Oppenheimer, said the suspension will “not [have] a big impact in the near term but is more negative long-term. It essentially puts BP in the penalty box, although it has not been kicked out of the game.”

The EPA said in a statement that it was acting “due to BP’s lack of business integrity as demonstrated by the company’s conduct with regard to the Deepwater Horizon blowout, explosion, oil spill, and response.” BP’s settlement of criminal charges included guilty pleas on 11 counts of misconduct or neglect of ship officers, one count of obstruction of Congress, one misdemeanor count of a violation of the Clean Water Act and one misdemeanor count of a violation of the Migratory Bird Treaty Act.

Rep. Edward J. Markey (Mass.), the ranking Democrat on the House Natural Resources Committee, called it “the right thing to do.” He added, “When someone recklessly crashes a car, their license and keys are taken away.”

But Gheit was surprised. “I am not sure why the government is doing that, since BP has done everything the government asked and more,” he said. “The spill cost BP more than $40 billion. Businesses and individuals were generously compensated, and the gulf region is back better than before. BP is the largest operator and investor in the gulf, and banning it from participating in the bid round does not help the government, BP or anyone else.”

But, he added, “if it is part of the government strategy to extract more money out of BP, it makes sense.”

Jim Noe, executive vice president of Hercules Offshore, the largest shallow-water drilling contractor in the gulf, said the EPA’s move was “surprising and unprecedented.” He said it “jeopardizes BP’s ability not only to do business with the government, like selling oil to the army, it puts at risk their ability to enter into new offshore leases for offshore drilling.”

The EPA was designated as the lead agency for suspension and debarment actions. “Suspensions are a standard practice when a responsibility question is raised by action in a criminal case,” the agency said.

BP said that it has made changes since the accident.

The company said it has been implementing all 26 of the recommendations made by an internal investigation immediately after the spill. In addition, it said, it has made “key leadership changes, reorganized its upstream business, created a centralized Safety and Operational Risk organization, and adopted voluntary deepwater drilling standards in the Gulf of Mexico that exceed current regulatory requirements.”

Joel Achenbach contributed to this report.

 
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