The BP Deepwater Horizon Disaster: An Overview of Immediate and Long-Term Legal and Environmental Consequences

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1 The BP Deepwater Horizon Disaster: An Overview of Immediate and Long-Term Legal and Environmental Consequences W. Paul Andersson, Esq. Edward T. Hayes, Esq. ALFA INTERNATIONAL International Law Practice Group Seminar September, Paris, France

2 The DEEPWATER HORIZON is a Reading & Bates Falcon RBS8D design semi-submersible drilling unit capable of operating in harsh environments and water depths up to 8,000 ft (2.438m). Fleet Specifications Classification Flag Accommodation Helideck Moonpool Station Keeping Max Drill Depth Max Water Depth Operating Conditions ABS Marshall Islands 130 berths Rated for S61-N Helicopter 21ft x 91ft Dynamically Positioned 30,000 ft / 9,144 m 8,000 ft / 2,438 m Significant Wave: 29 ft;@ 10.1 sec; Wind: 60 knots; Current: 3.5 knots Storm Conditions Rig Type Design Builder Year Built Significant Wave: sec; Wind: 103 knots; Current: 3.5 knots 5th Generation Deepwater Reading & Bates Falcon RBS-8D Hyundai Heavy Industries Shipyard, Ulsan, South Korea 2001

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5 February, 2010 Drilling begins in the Macondo Prospect approximately 41 miles (66 km) southeast of Louisiana

6 April 20, 2010 Explosion occurs, followed by fire and sinking of rig 126 Crew on board: 11 workers died, 4 critically injured, 111 workers rescued

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11 Steadily Increasing Flow of Oil Threatens Gulf Coast April 24 - BP reports oil leaking at rate of 1,000 barrels (160 cubic metres) per day April 28 - National Oceanic and Atmospheric Administration estimates oil leaking at rate of 5,000 barrels (790 cubic metres) per day April 30 - Oil first reaches land at Venice, Louisiana May 27 Oil leaking at estimated rate of 12,000 to 19,000 barrels (1,900 to 3,000 cubic metres) per day June 10 Oil leaking at estimated rate of 25,000 to 30,000 barrels (4,000 to 4,800 cubic metres) per day June 15 Oil leaking at estimated rate of 35,000 to 60,000 barrels (5,600 and 9,500 cubic metres) July 15 A cap is placed over the well, stopping the flow of oil for the first time August 2 Final estimate of oil leak: 4.9 million barrels Per barrel fine under US law: USD$1,100.00: potential BP fine USD$5,390,000, Over 2 million gallons of chemical dispersant Corexit (banned in UK) used to dilute oil

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15 Largest Oil Spills - in millions of gallons 1. Kuwait (1991) 300mm 2. Gulf Coast Deepwater Horizon 205+mm 3. Mexico-Ixtoc (1979) 138mm 4. Trinidad (1979) 90mm 5. Uzbekistan (1994) 84mm 6. Persian Gulf (1983) 80mm 7. Angola (1991) 80mm 8. South Africa (1983) 79mm 9. France (1978) 69mm Notable Absence?? Exxon Valdez (1989) 11mm

16 9. Paris, France (1978) 69mm gallons Amaco Cadiz tanker runs aground on Portsall Rocks near the coast of Brittany Largest oil spill of its kind to that date

17 Oiled beach in Brittany

18 View of BP oil slick transposed over Paris, France as of July 6, 2010

19 Fishing Closures (July 4, 2010)

20 US System for Regulation of Large-Scale Marine Environmental Disasters Two primary statutory schemes and issues related to Deepwater Horizon: 1. Shipowner s Limitation of Liability Act (1851) - 46 United States Code et seq. - Pertains only to Personal Injury and Death Claims 2. Oil Pollution Act (1990) - 33 United States Code 2701 et seq. - Pertains to Environmental Response and Economic Damage Claims

21 Shipowner s Limitation of Liability Act 46 USC et seq. Enacted to promote maritime commerce by protecting shipowners from unlimited liability associated with large losses Shipowner s limitation laws date back to Middle Ages First codified by King Louis XIV in Marine Ordinance of 1681 English Parliament enacted first statute in 1734 relieving shipowners from liability for acts of master and crew to the extent of the value of the ship, its equipment, and freight Early American courts did not recognize limitation and American shipowners experienced a competitive disadvantage to their English brethren

22 US Shipowner s Limitation of Liability US law enacted in 1851 to limit liability of the vessel owner for personal injury or death claims to the value of the vessel and pending freight after the loss Limitation is granted if the shipowner proves that the loss occurred without his privity or knowledge (Actual knowledge of events leading to loss) Deepwater Horizon is a VESSEL under the terms of the Act (self-propelled) May 13, 2010 Transocean, owner and operator of Deepwater Horizon, files request in US District Court in Houston, Texas to limit liability under the statute to USD$27 million, the value of the rig sitting on the ocean floor Value of rig prior to sinking was approx USD$650 million US Liability Act widely viewed as anachronistic and inequitable in modern day with availability of marine insurance Two separate bills pending in US Congress (S3478 and H.R. 5503) to retroactively repeal the Shipowner s Limitation of Liability Act

23 Oil Pollution Act 33 U.S.C et seq. Prior to 1989, the US did not have comprehensive legislation regarding oil pollution and oil disasters March 24, 1989: Exxon-Valdez disaster in Prince William Sound 11 million gallons of oil are spilled (205 million in Deepwater Horizon) No overriding federal rules and regulations regarding environmental response or payment of economic damages Under then existing maritime law, recovery for economic damages limited to those who sustained property damage No recovery for lost profits or economic losses unless oil damaged your property-robins Dry Dock rule (275 U.S. 303 (1927)) Exxon Valdez disaster highlighted the need for a federal coordinated environmental response and economic loss scheme

24 Oil Pollution Act Liability 33 USC 2701 et seq. Establishes comprehensive scheme for reacting to and addressing large-scale oil related environmental disasters BP Deepwater Horizon Disaster is first large-scale application of Oil Pollution Act Strict liability statute that imposes liability upon the Responsible Party for environmental cleanup, remediation and economic losses Responsible Party is generally defined as the owner of the vessel, oil well, etc. that is the source of the oil discharge Federal Government establishes and names the Responsible Party BP named responsible party in Deepwater Horizon incident Environmental Removal Costs and Damages Responsible Party liable for ALL removal costs and damages to natural resources, real property Includes reimbursement to federal and state governments for their efforts Economic Damages Responsible Party liable for ALL Lost Profits and Loss of Earning Capacity for those who depend upon the natural resource, including lost taxes and revenues suffered by municipalities Statutorily abrogates the Robins Dry Dock rule (allows downstream businesses to receive compensation

25 Oil Pollution Act Liability 33 USC 2701 et seq. No punitive damages Exxon-Valdez litigation lasted nearly 20 years over issue of punitive damages Liability limited to the total of all environmental clean-up costs, plus $75,000,000 Liability limit does not apply if the incident was proximately caused by acts of gross negligence or willful misconduct, or violation of Federal safety, construction, or operating regulation BP conceded it has excess liability in Deepwater Horizon Statute establishes a Claims Process to administer environmental and economic damage claims Responsible Party administers the process and all claims must first be presented to Responsible Party before lawsuit BP handled the claims process initially but under severe criticism for low payments, process turned over to Mr. Ken Feinberg (agent orange, 9/11, Virginia Tech) BP established USD$20billion fund for Mr. Feinberg to administer

26 Current Status of BP Deepwater Horizon As of July 28, 2010 at least 300 federal lawsuits filed in 12 different states Almost all name BP, Halliburton, Transocean, and Cameron as defendants Examples of lawsuits: Wrongful death claims by families of rig workers Economic injury claims by fishermen, processors, docks, distributors, wholesalers Personal injury claims by relief workers exposed to oil and dispersants Shareholder suits against BP for gross negligence and decrease in share value State and municipal pension funds with BP holdings claiming decreased value Restaurants, Bars, Hotels, Condo Owners, Tourist Attractions, Bait and Tackle Shops All lawsuits consolidated into one proceeding before one judge in New Orleans under rules of Multi District Litigation Open question whether claims settled in BP claims process will require release of all parties that may have played a separate role in causing the accident

27 Current Status of BP Deepwater Horizon & Federal Response US federal government imposed a deepwater drilling moratorium to study the causes of the disaster 80 percent of offshore oil production comes from deep water off Louisiana President Obama has used disaster to emphasize need for comprehensive energy reform American Clean Energy and Security Act of 2009 (ACES) A cap-and-trade global warming reduction plan designed to reduce economy-wide greenhouse gas emissions, compared to 2005 levels Requires 20 percent of electricity from renewable sources and increased energy efficiency by 2020 Performance standards for new coal-fired power plants and increased research for nuclear energy Current Status of ACES Passed House with minimum 219 votes (H.R. 2454) Stalled in Senate Committee on Environment and Public Works (S. 1733)

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29 EU System for Regulation of Large-Scale Marine Environmental Disasters Environmental and economic issues largely reserved to Member States EU maintains two primary programs for addressing large-scale disasters 1. Community Civil Protection Mechanism Council Decision 2007/779/EC, Euratom of 8 November Convention for Protection of the Marine Environment of the North-East Atlantic Created in 1972 and expanded in 1974, 1992 & 1998

30 Community Civil Protection Mechanism Council Decision 2007/779/EC Establishes a cooperation mechanism among Member States to improve coordination of civil protection assistance intervention in major emergencies, including accidental marine pollution. Any participating country inside or outside the EU can request assistance if affected by a major disaster 30 states currently participate: EU-27, Iceland, Liechtenstein and Norway Elements of Program European Commission establishes Monitoring and Information Centre (MIC) European Commission assumes responsibility for managing and mobilizing resources, intervention teams, and operations coordination (if necessary) Member States identify teams available for intervention within 12 hours following request, including experts and military resources

31 Community Civil Protection Mechanism Council Decision 2007/779/EC History of Deployments: 1. September, 2005: Hurricane Katrina US sent formal request for aid, including first aid kits, blankets, water trucks and 500,000 meals ready to eat 2. August, 2006: Conflict in Lebanon Response to oil spill off the coast of North Beirut and Humanitarian assistance 3. January, 2010: Haiti Earthquake Water purification modules from France provide 20,000 litres of water per day 4. May, 2010: Poland Floods France, Germany and others provide high capacity pumps to supplement national capabilities

32 Convention for Protection of the Marine Environment of the North-East Atlantic Regional Convention of 15 governments of Western European Coast and EC to protect marine environment of North-East Atlantic Began in 1972 with Oslo Convention against dumping Paris Convention 1974 broadens to include land based sources and offshore industry (oil and gas) Two conventions updated and unified in 1992 OSPAR convention New annex on biodiversity and ecosystems adopted in 1998 to cover non-polluting human activities that can affect the sea Administered by OSPA Secretariat Central guiding feature is Polluter Pays Principle : Polluter pays costs for environmental prevention, control and reduction measures (OPA-Responsible Party)

33 Where next? BP Deepwater Horizon disaster illustrates complex relationship involving reliance on natural resources Necessity for deepwater exploration weighed against potential harmful environmental consequences US legal structure applies mostly after the fact once disaster strikes US needs to focus more on prevention efforts (moratorium seeks to address) US structure for post-disaster clean-up and compensation is good but has systemic problems Liability limits Polluter as Responsible Party creates conflict of interest (want to limit exposure and payments) EC structures for environmental response are good, but no European structure in place to handle large-scale economic damages Could be too much for Member-States to handle EC should study OPA as applied in Deepwater Horizon for future efforts