Anadarko Assessed USD 159.5 Million Penalty in DEEPWATER HORIZON Case
On November 30, 2015, the United States District Court for the Eastern District of Louisiana handed down the Findings of Fact and Conclusions of Law in the penalty phase of the civil case against Anadarko Petroleum Corporation ("Anadarko") for its role in the 2010 DEEPWATER HORIZON incident. Limiting its decision to the Government's claim based on the Clean Water Act ("CWA"), the Court found Anadarko liable and imposed civil penalties of USD 159.5 million.
The DEEPWATER HORIZON incident remains the worst oil spill in U.S. history. On April 20, 2010, an explosion on the offshore drilling rig caused a blowout of the underwater oil well Macando, approximately fifty (50) miles off the coast of Louisiana. Eleven (11) of the one hundred twenty-six (126) people aboard the DEEPWATER HORIZON died in the explosion and subsequent fires; seventeen (17) more were seriously injured. Fueled by hydrocarbons from the well, the DEEPWATER HORIZON burned continuously until it capsized and sank two (2) days later. However, as the rig descended, piping that connected the rig to the seafloor collapsed and fractured, which resulted in the discharge of nearly 3.19 million barrels of oil into the Gulf over a four-month timespan.
It was not long after the blowout that lawsuits began to be filed, with over 3,000 cases and well over 100,000 plaintiffs filing claims. Most of the federal cases that resulted from the DEEPWATER HORIZON incident were consolidated as Multidistrict Litigation 2179. Part of that consolidated litigation included the case captioned United States v. BP Production, et al, which included BP Exploration and Production, Inc, MOEX Offshore 2007 LLC, various Transocean entities, and Anadarko. As part of the Government's complaint against these organizations, civil penalties where sought under the CWA and a declaratory judgment under the Oil Pollution Act of 1990.
The CWA itself prohibits the discharge of "harmful" quantities of oil into or upon statutorily covered waters or adjoining shorelines – in connection with activities under the Outer Continental Shelf Lands Act of 1953 or Deepwater Port Act of 1974 – or which may affect natural resources. Certain persons (i.e., owners, operators, persons in charge of vessels, onshore facilities, and offshore facilities) who violate the CWA's prohibition of oil discharged into U.S. waters are subject to civil penalties up to a statutory maximum of $1,100 per barrel of oil spilled.
The CWA provides eight (8) factors a court must consider in determining the actual amount of a civil penalty: (1) the seriousness of the violation(s); (2) the economic benefit to the violator, if any, resulting from the violation; (3) the degree of culpability involved; (4) any other culpability form the same incident; (5) any history of prior violations; (6) the nature, extent, and degree of success of any efforts of the violator to minimize or mitigate the effects of the discharge; (7) the economic impact of the penalty on the violator; and (8) any other matters justice may require.
In addressing the above factors in Anadarko's role as a 25% stakeholder in the DEEPWATER HORIZON, the Court found as follows: First, the Court found the seriousness of the discharge to be unprecedented in scale and damage. Second, in extrapolating the "economic benefit" of the spill to Anadarko, the Court found that, although the entire DEEPWATER HORIZON enterprise saved USD 13.5 million in preventative expenses that may have forestalled the disaster (with Anadarko's share being USD 3.375 million), this figure was ultimately offset by the USD 4 billion Anadarko eventually paid to settle compensatory claims arising from the spill. Third, the Court held that as a non-operating minority owner in the DEEPWATER HORIZON – in contrast to BP, who was the operator and 65% owner – Anadarko was not directly culpable for the spill. Fourth, the Court found that, to date, Anadarko had not paid penalties for the spill, unlike the other parties which had paid billions to various charitable organizations pursuant to a plea agreement. Fifth, the Court found that Anadarko had at least ten (10) prior CWA violations in the six (6) years preceding the spill. Sixth, the Court found Anadarko's effort to mitigate the damages were "at best, adequate," as it "did not shirk its responsibilities, but it could hardly be called a willing participant in the response." Seventh, Anadarko itself admitted that the statutory maximum, in this case USD $3.5 billion, would not be ruinous to it, although it did contend that any penalty would have a negative economic impact on its business. Finally, in deciding the eighth factor, the Court looked to the CWA's purpose as a deterrent and weighed the amount of penalty in light of its possible effect on the investment of other non-operators in similar ventures.
Ultimately, the Court struck a balance, citing Anadarko's lack of direct culpability over the remedial and regulatory purposes of the CWA. In the end, the Court determined that Anadarko should be assessed a penalty of USD 50 per barrel – well below the maximum of USD 1,100 per barrel – for a total of USD 159.5 million.
To read a copy of the Court's decision, click here.
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