BP Alaska deal seen pointing to big Gulf fine

Wed May 4, 2011 9:53am EDT

* Experts note high per-barrel penalty

* Practice of invoking range of laws bad sign for BP

By Tom Bergin

LONDON, May 4 (Reuters) - BP Plc's (BP.L) $85 million settlement with the U.S. Dept. of Justice for oil spills in Alaska in 2006 suggests the government will push for higher than expected fines related to the Gulf of Mexico oil spill.

Legal experts said the size of the $25 million penalty levied as part of the deal, when calculated on a per barrel of oil spilt basis, and the DoJ's willingness to invoke a raft of legislation to threaten BP, set a bad precedent for BP.

"The per barrel calculus is really sort of a way of communicating to the public that the Obama administration is very serious about this stuff," said Zygmunt Plater, Professor of Law at Boston College Law School.

BP has indicated it will face fines of under $5 billion related to the 2010 oil spill, rather than the around $21 billion it could face if it was found guilt of gross negligence -- a position that most analysts have accepted.

However, if the Alaska settlement is a template, BP could end up paying out well in excess of $21 billion, as the spill at Prudhoe Bay in 2006 was dwarfed by the nearly 5 million barrels spewed from BP's ruptured Macondo well last summer.

The two Alaska spills led to 5,078 barrels of crude spilling on the Tundra, the DoJ said, and the $25 million civil penalty BP was forced to pay, equates to over $4,900 per barrel.

The DoJ said it was the largest per-barrel penalty to date for an oil spill, although BP denied the penalty was assessed on a per barrel basis.

BP has also agreed to spend an additional $60 million in improving safety. [ID:nN0383425]

These amounts are on top of a $12 million criminal fine, and $8 million in other penalties levied in 2006 for the same spills.

The $25 million penalty alone equates to over $4,900 per barrel, as against to a maximum $4,300 per barrel fine applicable under the Clean Water Act -- the main statute that covers oil spill -- penalties.

The DoJ invoked the Clean Water Act, the Clean Air Act and the pipeline safety laws in the settlement and Plater said this willingness to throw every weapon in the legal toolkit at BP was a departure from the policy of the previous U.S. Administration.

However, some analysts denied there was any read across between the two situations.

"Just because you're grossly negligent in Alaska doesn't mean you're grossly negligent in the Gulf of Mexico," said Iain Armstrong at Brewin Dolphin.

BP shares traded down 1.45 percent at 1324 GMT on Wednesday, against a 1.75 percent drop in the STOXX Europe 600 Oil and Gas index .SXEP. (Reporting by Tom Bergin; Editing by Hans Peters)

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