Transocean agrees to plead guilty, pay $1.4 billion in fines over 2010 Gulf spill
By NOLA.com | The Times-Picayune
on January 03, 2013 at 4:33 PM, updated January 03, 2013 at 8:24 PM
Mark Schleifstein and Richard Thompson
NOLA.com | The Times-Picayune
Transocean Ltd., the owner of the ill-fated Deepwater Horizon rig that was leased to BP when its Macondo well erupted off the Louisiana coast in 2010, has agreed to pay $1.4 billion in civil and criminal fines and penalties for its role in the massive oil spill, one of the worst environmental disasters in U.S. history, the company and the U.S. Department of Justice announced Thursday.
Under the deal, Transocean, the Houston-based offshore driller, has agreed to plead guilty and pay $1 billion to resolve federal Clean Water Act civil penalty claims -- 80 percent of which will be directed to projects aimed at alleviating effects of the spill under the federal RESTORE Act -- and another $400 million in criminal fines and penalties for federal offshore drilling safety violations in the events leading to the Gulf spill.
The settlement, which will be subject to a 21-day public comment period and must still be approved by U.S. District Judge Carl Barbier, involves only issues that would have arisen during the first phase of a trial in New Orleans over the spill that is to begin on Feb. 25.
"Defendant Transocean, along with BP, had a duty to maintain well control," said the bill of information outlining the criminal charge, which was filed in U.S. District Court in New Orleans. "Entailed in this duty were responsibilities relating to conducting safe drilling and rig operations, ensuring the safety of personnel onboard and preventing accidents which could impact the environment."
On April 20, 2010, an uncontrolled flow of natural gas unexpectedly reached the deck of the Deepwater Horizon and exploded, causing a fire that resulted in the rig's sinking two days later. Eleven people died in the disaster.
Federal investigators determined in a March 2011 report that a drill pipe got trapped and buckled in the blowout preventer, a device on the wellhead on the Gulf floor that was supposed to use a series of rams, valves and shearing blades to close off BP's Macondo well once oil and gas from deep below the seabed started gushing out. The buckling prevented key mechanisms from closing.
When the rig sank, the riser pipe connecting the well to the surface also dropped to the Gulf floor, and oil and natural gas spewed from the top of the well and several holes in the riser until the flow was blocked and the well capped two months later.
The safety restrictions required under the agreement include certifications of maintenance and repair of blowout preventers before each new drilling job, and personnel training related to spills and spill response. The Macondo well spill is in part believed to be the result of failures of the blowout preventer to stop the flow of oil once the Deepwater Horizon rig a mile above it caught fire and sank.
An estimated 4.9 million barrels of oil were released during that period.
In a filing with the Securities and Exchange Commission announcing the settlement, the company said that in return for the plea agreement and cooperation with its ongoing criminal and civil investigations, the Justice Department has agreed "not to further prosecute Transocean Ltd. and related Transocean entities for certain conduct generally regarding matters under investigation by the DOJ's Deepwater Horizon Task Force"
Transocean Deepwater Inc. signed a cooperation and guilty plea agreement with the government, admitting criminal conduct. The civil fines will be paid by Transocean's related companies, including Transocean Ocean Holdings LLC, Transocean Offshore Deepwater Drilling Inc., Transocean Deepwater Inc., and Triton Asset Leasing GMBH.
In a news release, Transocean said the settlement does not cover any company liability issues involving payment of costs under the Oil Pollution Act's Natural Resource Damage Assessment process. But the company said an earlier ruling by Barbier shields Transocean from any liability under the damage assessment process.
Transocean will pay a $400 million criminal fine for the safety violations, with $100 million to the federal government; $150 million to be paid to the National Fish & Wildlife Foundation for coastal restoration projects, half of which will be dedicated to restoration of barrier islands and wetlands in Louisiana; and $150 million to the National Academy of Sciences for a 30-year program already financed with BP fine money that will pay for scientific studies, projects and activities focused on environmental protection and human health in the Gulf of Mexico.
The company was given a five-year schedule to pay the fines, with $560 million due in 2013. It also will be subject to five years of probation, the maximum allowed under the law. The company may also face being prohibited from participating in federal contracts.
In November, BP agreed to plead guilty to criminal violations associated with the spill and the death of 11 workers aboard the Transocean rig. As part of that $4.5 billion settlement, $2.4 billion was to be paid to the National Fish & Wildlife Foundation and $350 million to the National Academy of Sciences.
BP also has reached a separate class action settlement agreement with private claimants -- approved in December by Judge Barbier -- under which it agreed to pay out at least $7.8 billion in economic and property damage related to the spill. And the company also has committed to paying $1 billion in advance for Natural Resource Damage Assessment projects, before the assessment process is complete.
BP spokesman Geoff Morrell said in a statement Thursday that Transocean's settlement "underscores what every official investigation has found: that the Deepwater Horizon accident resulted from multiple causes, involving multiple parties."
"In settling, Transocean has acknowledged that it played a significant role and has responsibility for the accident," Morrell said. "Transocean is finally starting, more than two-and-a-half years after the accident, to do its part for the Gulf Coast. Unfortunately, Halliburton continues to deny its significant role in the accident, including its failure to adequately cement and monitor the well."
U.S. Sen. David Vitter, R-La., took a far different tone Thursday, saying that the deal "seems like an important, positive step forward in getting the Gulf restoration well underway," adding, "Hopefully, this leads soon to much bigger final action with BP, the main culprit in this horrible disaster."
U.S. Sen. Mary Landrieu, D-La., agreed: "While this is an important achievement, I hope it will be one in a series of settlements to bring justice and resolution to our region. I continue to work to hold BP accountable under every applicable statute for what I believe was gross negligence leading up to the Deepwater Horizon disaster."
The settlement also was praised by Louisiana Gov. Bobby Jindal for its potential to help rebuild the state's coast. But he also pointed out that it was an important step leading to an eventual settlement with BP.
"While this small step forward will not bring back the 11 lives that were lost or reverse the extraordinary damages caused by the Deepwater Horizon disaster, it is incremental progress in Transocean making it right. Natural resources damages and response costs are excluded from this agreement," Jindal said. "Now the focus remains on BP to fulfill the commitments of their PR campaign to put this tragedy behind us."
The settlement also requires the companies to implement court-enforceable measures to improve their operational safety and ability to respond to emergencies at all their drilling rigs in U.S. waters.
"This resolution of criminal allegations and civil claims against Transocean brings us one significant step closer to justice for the human, environmental and economic devastation wrought by the Deepwater Horizon disaster," U.S. Attorney General Eric Holder said in a news release. "This agreement holds Transocean criminally accountable for its conduct and provides nearly a billion dollars in criminal and civil penalties for the benefit of the Gulf states."
Legal experts and industry analysts have speculated that Transocean's fines would likely pale in comparison to what BP faces in civil penalties for natural resource damages and claims under the Clean Water Act.
David Uhlmann, the former head of the Justice Department's Environmental Crimes Section and a law professor at the University of Michigan, speculated Thursday that the settlement with Transocean "increases the likelihood that BP will settle before the February trial date."
The record $1 billion in Clean Water Act civil penalties dwarfs the $70 million penalty paid by MOEX Offshore 2007 LLC last year to settle its own involvement in the spill. MOEX was a 10-percent partner with BP in the Macondo well.
According to the Justice Department news release, by agreeing to plead guilty, Transocean Deepwater Inc. has admitted that members of its crew onboard the Deepwater Horizon, acting at the direction of BP's "Well Site Leaders" or "company men," were negligent in failing fully to investigate clear indications that the Macondo well was not secure and that oil and gas were flowing into the well.
That admission is likely to be used during the trial -- if BP does not settle its own remaining Clean Water Act and safety claims before the trial begins.
But an investigative report released by the Coast Guard a year to the day after the Deepwater Horizon oil rig sank in the Gulf placed a greater share of the blame for the accident on Transocean, saying "numerous systems deficiencies, and acts and omissions by Transocean and its Deepwater Horizon crew" stopped them from stemming the impact of the disaster once it started, and alluded to a lack of a safety culture at Transocean.
The Coast Guard, which led a joint accident investigation with the Interior Department's offshore regulatory agency, the Bureau of Ocean Energy Management, Regulation and Enforcement, found that Transocean's drilling crew, eight of whom died, did not take steps to direct most of the flammable gas away from ignition sources, a move that could have lessened the impact of the disaster.
At the time, Transocean strongly disagreed with findings in the Coast Guard report.
In trading Thursday, shares of Transocean Ltd. rose $2.96, or 6.4 percent, to $49.20.
Uhlmann, the former Justice Department official, described the settlement as "a good deal for Transocean," and "probably good news for Haliburton," which also faces federal offshore safety violations.
Transocean, which had set aside $2 billion for claims related to the spill, disclosed in a November filing with the Securities and Exchange Commission that it had discussed a $1.5 billion settlement with the Justice Department in September. By waiting, Uhlmann said the company "did better in January than they were hoping to do in September, which is not usually how the settlement talks progress."
"Although the civil number could have been a higher one, it is a record amount, and reflects the gravity of the harm caused by Transocean," Uhlmann said.
Uhlmann said it was "somewhat surprising" that Transocean, like BP, was not charged with felony counts of misconduct or neglect of ships' officers relating to the loss of 11 lives, the equivalent of manslaughter charges.
"It would have made sense to insist that Transocean plead guilty those charges as well, and it's another aspect of the criminal deal that is surprising," he said.
"The criminal division obviously has a much dimmer view of BP's conduct and feels their negligence was far more responsible for the explosion and the resulting worker deaths, but every expert report that's been issued to date has found significant fault with Transocean as well, and it would've been appropriate to charge Transocean with manslaughter charges on that basis," Uhlmann added.
Federal regulators notified BP, Transocean and Halliburton in October 2011 that the companies violated federal safety regulations.
Transocean and Halliburton were each issued four so-called Incidents of Non-Compliance based on the findings of the Joint Investigation Team of the Bureau of Ocean Energy, Management, Regulation and Enforcement and the Coast Guard, which looked into the circumstances surrounding the April 20, 2010, explosion of the Deepwater Horizon, the loss of life and the resulting oil spill.
A separate investigation of the accident by a presidential commission also concluded that actions by Transocean employees contributed to the accident. The commission recommended that 80 percent of any fines stemming from the accident be dedicated to restoration of natural resources in and along the Gulf of Mexico and the Mississippi River.
Twenty percent, or $200 million, of the Clean Water Act fine money goes to the federal treasury. The other $800 million is put into trust funds set up by the RESTORE Act will be a good first test of whether the new federal-state Gulf Coast Ecosystem Restoration Commission set up under the act will direct the majority of the money to restoration purposes, said Don Boesch, a member of the presidential task force and director of the University of Maryland Center for Environmental Science.
"Our point was that it made sense from a national perspective to take some of these resources and address them to the long term degradation of the northern Gulf Coast," Boesch said. "Oil and gas production and the management of the river and other things that were in the natural interest were the reason we believed it is a national responsibility to focus on restoration.
"We hope the states and the federal agencies on the council would continue to heed our recommendations and address as much of this as possible to true environmental restoration," he said.
The new council "will work with states and the local communities to identify projects and programs that will restore the region's natural resources and help benefit local businesses, boost their economies, and create jobs," said Sarah Horowitz, a spokeswoman for the Department of Commerce.
"Over the next few months, the council will develop the criteria and process for the Comprehensive Plan (for Gulf Coast restoration, required under the RESTORE Act), which will be developed with input from stakeholders and the public," Horowitz said. "The Council will actively look at existing restoration plans in order to develop the Comprehensive Plan. The Comprehensive Plan will also include a list of previously authorized projects and programs."