BP Is Banned

Citing a “lack of business integrity” during “the largest environmental disaster in U.S. history,” the U.S. Environmental Protection Agency (EPA) announced last Wednesday that BP is banned from obtaining new oil drilling contracts within the United States. Existing deals, including the 50 leases BP was awarded by the U.S. government in the Gulf of Mexico over the last two and a half years since the accident, will not be affected by the ban.

“EPA is taking this action due to BP’s lack of business integrity as demonstrated by the company’s conduct with regard to the Deepwater Horizon blowout,” the EPA said in a statement. “Suspensions are a standard practice when a responsibility question is raised by action in a criminal case.”

BP’s ban was announced just hours before the federal government held a sale for drilling in more than 20 million acres offshore in the Gulf of Mexico. BP was forced to sit out while 13 other offshore companies submitted bids totaling more than $133 million. The government’s next sale is scheduled for March 2013 and will make 38 million acres available. Of greatest concern to BP, analysts said, is the prospect of missing out on tens of millions of acres that the government plans to lease for drilling to oil and natural gas companies in the coming months.

“How big this is depends on how long it lasts,” said Phil Weiss, an analyst at Argus Research. “It’s a negative that they can’t participate in (Wednesday’s sale), but it’s not a big concern. If it happens two times, or three times or 10 times, it’s a much bigger concern.”

BP is the top U.S. offshore oil and gas producer, and the largest investor and deep-water leaseholder in the Gulf, with more than 700 gross blocks and seven rigs currently in production. BP is also the top fuel supplier to the U.S. military, the largest single buyer of oil in the world. In September, BP won two contracts with the Defense Department to provide almost $1.4 billion in fuel products over a yearlong period, according to federal contracting announcements.

Earlier this month, BP plead guilty to 11 counts of neglect related to the deaths of eleven rig workers, a count of Obstruction of Congress for lying about how much oil was actually spilling from the Macondo well and misdemeanors related to the Clean Water Act and the Migratory Bird Treaty Act. The company agreed to pay $4.5 billion in penalties, including a record $1.256 billion criminal fine. This fine, which protects BP from further federal criminal charges related to the 2010 spill and remains subject to court approval, marks the largest corporate criminal penalty ever assigned by the U.S. Department of Justice, topping the $1.2 billion fine imposed on drug giant Pfizer in 2009. BP said it has now spent over $40 billion on spill related costs.

“From the outset, we made a commitment to clean up the spill and pay legitimate claims – and we’ve been fulfilling that commitment ever since,” said BP Chief Executive Bob Dudley. “As we move forward, we are preparing to defend ourselves in court on the remaining claims.”

An EPA official said government-wide suspensions generally do not exceed 18 months, but would not lift the ban until BP demonstrated “sufficient evidence that it meets federal business standards.” In a statement, BP said it has been in “regular dialogue” with the EPA, and that the agency has informed BP that it is preparing an agreement that “would effectively resolve and lift this temporary suspension.” The EPA has notified BP that the draft agreement will be available soon, BP said.