* Suspension could threaten BP's offshore leases, military
* BP pleaded guilty over 2010 Gulf of Mexico oil spill
* BP says hopes to reach deal with EPA to resolve suspension
By Roberta Rampton and Timothy Gardner
WASHINGTON, Nov 28 The U.S. government banned BP
Plc from new federal contracts on Wednesday over its
"lack of business integrity" in the 2010 Deepwater Horizon oil
spill, a move that could imperil the British energy giant's U.S.
The suspension, announced by the U.S. Environmental
Protection Agency, comes on the heels of BP's Nov. 15 agreement
with the U.S. government to plead guilty to criminal misconduct
in the Gulf of Mexico disaster, the worst offshore oil spill in
U.S. history. BP agreed to pay $4.5 billion in penalties,
including a record $1.256 billion criminal fine.
BP and its affiliates are barred from new federal contracts
until they demonstrate they can meet federal business standards,
the EPA said. The suspension is "standard practice" and BP's
existing U.S. government contracts are not affected, it said.
The EPA action could complicate BP's plans to grow its
production in the Gulf of Mexico, and came just hours before a
government auction of offshore Gulf tracts. The company may also
struggle to remain the largest fuel supplier to the U.S.
military, the largest single buyer of oil in the world.
The EPA's suspension of contracts could push BP to settle
civil litigation brought by the U.S. government and states from
the spill. An EPA official said government-wide suspensions
generally do not exceed 18 months, but can continue longer if
there are ongoing legal cases.
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.
The suspension could threaten BP's dominance in the Gulf of
Mexico, where it is the largest investor and lease-holder of
deep-water tracts. U.S. operations accounted for over 30 percent
of BP's pre-tax profits in the third quarter, and the United
States accounts for about a fifth of BP's global oil production.
The U.S. military has been a reliable customer of BP's jet
fuel and other refined products. As recently as September, BP
affiliates won two fuel supply contracts with the U.S. military
worth as much as $1.37 billion to supply fuel to the U.S.
Defense Logistics Agency, the Pentagon's procurement arm,
according to a U.S. website that tracks military contracts.
The EPA's action is a sign that all federal contractors will
be held to high standards, said Scott Amey, general counsel for
the Project on Government Oversight, a federal watchdog group.
"BP had years to improve its business ethics and is paying
the price for its inaction," Amey said.
The company's Finance Director Brian Gilvary told investors
on a Nov. 15 conference call that should a blanket ban be put in
place, the company may have to rethink its entire U.S. business.
The U.S. government could use the suspension as leverage to
pressure BP to settle civil charges from Deepwater Horizon,
which could top $20 billion if BP is found to be grossly
negligent for the spill under the U.S. Clean Water Act.
The Justice Department says it intends to prove in a court
case set to get underway in February 2013 that BP was grossly
negligent, a claim the company has adamantly refuted.
"The critical question is whether this a shot across BP's
bows to get settlement, or a more sustained stance, in which
case the importance of the context is underlined" by Gilvary's
comments, said Peter Hutton, an analyst with RBC Capital
However, the suspension will not impair BP's ability to
produce oil and gas from existing U.S. assets, said Pavel
Molchanov, an analyst with Raymond James & Associates Inc in
"BP's supply contract of fuels to the Pentagon might be at
risk, but of course BP could supply other customers if this
supply contract is not renewed," Molchanov said in a research
BP and the U.S. government likely worked out a deal on the
timing of the suspension before BP agreed to sign off on the
Nov. 15 criminal plea deal, said Samuel Buell, a Duke University
Law School professor and former federal prosecutor.
"It's just inconceivable to me that BP's lawyers that their
board of directors would have entered into that agreement last
week without the issue of a suspension or debarment having been
addressed," Buell said.
BP did not participate in Wednesday's federal auction of 20
million acres (8 million hectares) of drilling tracts in the
Gulf of Mexico, one of BP's biggest oil production regions
If BP had submitted high bids in the sale, they would not
have been approved until the suspension was resolved, said Tommy
Beaudreau, director of the U.S. Bureau of Ocean Energy
Management, which oversees the federal leases. BP said its
decision not to participate was made "prior and independent of"
the suspension action.
"Federal executive branch agencies take these actions to
ensure the integrity of federal programs by conducting business
only with responsible individuals or companies. Suspensions are
a standard practice when a responsibility question is raised by
action in a criminal case," it said.
One long-time critic of BP applauded the decision.
"After pleading guilty to such reckless behavior that killed
men and constituted a crime against the environment, suspending
BP's access to contracts with our government is the right thing
to do," U.S. Rep. Edward Markey, a Democrat from Massachusetts,
said in a statement.
BP's U.S.-traded shares closed flat, while London-traded
shares were down less than 1 percent at 427 pence.