INTRODUCTION
On April 20th, 2010 the lessees of the Deepwater Horizon had recently completed drilling
an exploratory well in 5000 feet of water approximately 41 miles off the Louisiana coast and
were closing the well in anticipation of later production. BP PLC. (BP) was leasing the mobile
offshore drilling unit (MODU) from the owner, Transocean Ltd., for the purpose of drilling in
the Mississippi Canyon Block 252 oil field, at a site known as the Macondo Well. Suddenly a
bubble of methane traveled up from the well into the MODU, creating an explosion aboard the
Deepwater Horizon, which killed 11 of the crew and created a massive fire. The Deepwater
Horizon was completely destroyed by the ensuing inferno and sank to the bottom of the ocean on
April 22nd, 2010. The sinking of the MODU caused crude oil to begin gushing out of the
wellhead riser – a 5000 foot pipe which connects the opening of the well (wellhead) to the
drilling platform on the surface. Seven days later, President Barack Obama appeared on
television and assured the American public that BP would be held financially responsible for the
costs of response and cleanup operations. The estimated oil flow was 62,000 barrels per day.
By the first week in June, the oil had come ashore in Louisiana, Mississippi, Alabama
and Florida. The U.S. Fish and Wildlife Service reported that up to 32 National Wildlife Refuges
were potentially affected by the spill. Dead dolphins and turtles were washing up on the Gulf
beaches. Until the Deepwater Horizon oil spill, the largest maritime oil spill was the 1989 Exxon
Valdez spill off the coast of Alaska. When the well was finally capped on July 15th, 2010, the
National Oceanic and Atmospheric Administration estimated 4.9 million barrels of oil had been
released into the Gulf of Mexico during the previous 86 days. In total, the amount of oil released
was 19 times greater than the amount of oil released during the 1989 Exxon Valdez oil spill. See
figure 1.
Figure 1: Visual Representation of Oil Landfall
Source: Aigner, Erin. Map and Estimates of the Oil Spill in the Gulf of Mexico
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APPLICABLE LAW
National Environmental Policy Act
The enactment of the National Environmental Policy Act (NEPA) followed a blowout at
Union Oil Platform A on the Dos Cuadros field, which spilled roughly 100,000 barrels of crude
into the Pacific Ocean off the coast of Santa Barbara, California. The purposes of the NEPA
were to make a national policy to prevent or eliminate damage to the environment, as well as
enrich the understanding of ecological systems and natural resources. To this end, NEPA
established the Council on Environmental Quality (CEQ) in the executive office of the president
and mandated detailed environmental reviews to be prepared by government agencies for any
major actions affecting the environment. If the adverse environmental effects of the proposed
action are adequately identified and evaluated, the agency is not constrained by NEPA from
deciding that other benefits outweigh the environmental costs and moving forward with the
action. In Robertson v. Methow Valley Citizens Council (1989), the Supreme Court held that
NEPA simply describes a process for identifying environmental consequences and serves merely
to prohibit “uninformed, rather than unwise” agency action.
In the case of Deepwater Horizon, Minerals Management Service (MMS) was the lead
agency ensuring compliance with those requirements. At the time of NEPA review for the
Deepwater Horizon exploration permit, MMS guidance provided that many exploration plans in
the Gulf may be categorically excluded from further NEPA review. According to the MMS
operations manual, “the impacts from the common operations are expected to be negligible to
non-existent based upon general information gathered during past environmental analyses.”
Essentially, MMS found no reason to conduct an environmental analysis because prior analyses
had shown minimal environmental impact from deepwater offshore drilling. Thus, a Categorical
Exclusion (CE) was issued for the Deepwater Horizon MODU in April 2009.
Clean Water Act of 1972
The Clean Water Act of 1972 (CWA) serves as the principle statute protecting water
from pollution. The CWA and its subsequent amendments were enacted with the goals of
restoring and maintaining the integrity of the nation’s waters, eliminating the discharge of
pollutants into the waters, and promoting the development and implementation of state-of-the-art
technology for use in industry and municipal sources of harmful effluents. In the 2006 case of
Rapanos v. United States, the Supreme Court held that while the CWA uses the language
“navigable waters of the United States,” all waters with “significant nexus” to navigable waters
are covered under the CWA. This would include intermittent streams and wetlands connected to
the Gulf of Mexico, which have also been infiltrated by the oil. The CWA is the statute that the
DOJ is using to pursue civil lawsuit against BP and other responsible parties.
Under section 311(b)(7)(a), the Administrator of the EPA or DHS, at his discretion, may
fine the responsible parties $25,000 (adjusted to $37,500) per day of violation or up to $1,100
per day. If it is determined that the discharge ban was violated as a result of gross negligence or
willful misconduct, the fine is increased to $140,000 per day or $4,300 per barrel of oil
discharged. In addition to the fine for violating the statute, a violator who discharges oil in
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“harmful qualities” may be assessed a Class I or Class II penalty by the Department of Homeland
Security or the EPA. The Class I penalty ranges from $16,000 per violation to $37,500 per
violation. The Class II penalty ranges from $16,000 per violation to $177,500. When
determining the amount of BP’s fine or whether an administrative penalty is assessed, the
seriousness of the violation will be considered, as well as the degree of culpability and past
violations.
Oil Pollution Act of 1990
The Oil Pollution Act of 1990 (OPA 90) was passed by Congress following the Exxon
Valdez oil spill into Prince William Sound. The OPA 90 amended Section 311 of the Clean
Water Act and clarified prevention, response, liability and compensation with regard to oil
pollution in United States navigable waters. The OPA 90 serves as the chief statute for oil spill
governance. Prior to the OPA 90, the presiding framework for oil spills consisted of a patchwork
of overlapping statutes and regulations. Following the Exxon Valdez oil spill in 1989, the federal
government charged Exxon with violations of the CWA, Endangered Species Act, the Migratory
Bird Treaty Act, the Refuse Act, etc. OPA 90 consolidated the statutes and regulations governing
environmental pollution.
By specifically categorizing the violation by source, such as vessels, onshore facilities,
offshore facilities, and deepwater ports, OPA 90 was able to set different fines and fees for
different sources. The fines and fees were limited, except in the event of gross negligence, willful
misconduct, or violation of a federal safety statute. The limits of liability were enacted with the
rationale of allowing smaller companies and smaller corporations to participate in the industry
without being excluded by the required $75 million Certificate of Financial Responsibility
(COFR). For offshore facilities, the upper limit of liability is $75 million plus removal costs. The
upper limit is removed in the event of proven gross negligence, willful misconduct or statutory
violations. For the Deepwater Horizon spill, BP waived the upper limit of liability, and BP has
already paid over $1.5 billion to state and federal trustees for natural resource damages.
The OPA 90 also authorized use of the Oil Spill Liability Trust Fund (OSLTF). OPA 90
consolidated the liability and compensation requirement of certain federal pollution statutes,
including the Federal Water Pollution Control Act, the Deepwater Port Act, the Outer
Continental Shelf Lands Act, and the Comprehensive Environmental Response Compensation
and Liability Act into the OSLTF. The OSLTF is used to pay for immediate costs of responding
to an oil spill, which are supposed to be reimbursed by responsible parties. In the event the
responsible parties cannot be determined, the OSLTF can pay for response and restoration up to
a limit of $1 billion. The primary funding for the OSLTF is a 5¢ tax on each barrel of imported
or domestic oil. Any fines paid by responsible parties are to be deposited into the OSLTF. The
United States Coast Guard assumed responsibility of the OSLTF by executive order, and the
National Pollution Funds Center was established in 1991 to oversee implementation of the
OSLTF, insure funding for federal response, and recover costs from liable parties.
Additionally, OPA 90 specifically addressed natural resource damages and provided a 3phase response for assessing and restoring natural resource damages. The OPA 90 decreed that
federal and state trustees would be designated to oversee the natural resource remediation. Under
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the Act, the Department of the Interior, working through the National Oceanic and Atmospheric
Administration, would implement the Natural Resource Damage Assessment (NRDA). The
NRDA is divided into three phases: Preassessment Phase; Restoration Planning Phase; and
Restoration Implementation Phase.
WHO DETERMINES DAMAGES
Federal and State Trustees
The ecosystem of the Gulf Coast region including the land, waters, plants, wildlife, etc. is
referred to collectively as natural resources. A great portion of oil cleanup concerns restoration
of those natural resources. The OPA 90 entrusted the post-oil spill restoration of natural
resources to a group of federal trustees, state trustees, and Indian trustees, known as the Trustee
Council. The Trustee Council determines the extent of natural resource damages, the value of the
resources, and the methods of restoration. The Trustees are generally chosen by the President and
governors of the affected states. The Trustee Council is tasked with investigating and carefully
surveying the post-spill natural resources damages and working with the public and designated
responsible parties to create a restoration plan under a process known as Natural Resource
Damage Assessment (NRDA).
The NRDA is a legal process created by OPA 90 and is designed to avoid a litigation
process regarding natural resource damages. The Trustee Council maintains authority over the
NRDA but works closely with the office of the Damage Assessment Remediation and
Restoration Program (DARRP), a component of the National Oceanic and Atmospheric
Administration (NOAA). At the direction of the Trustee Council, the DARRP provides
assistance in the form of scientific data and input from leading experts specializing in post-spill
natural resource damage restoration. The final restoration plan developed by the Trustee Council
will be given to the responsible parties, as will the costs of assessing the natural resources
damages.
The United States Coast Guard
The United States Coast Guard (USCG) maintains regulatory authority over any mobile
offshore drilling unit (MODU) operating under a MMS lease, including safety equipment,
navigation equipment, and the safety of the crew. The USCG ensures through inspection that
foreign-flagged vessels, such as the Deepwater Horizon MODU, are up to design, equipment and
operating standards of the United States. The USCG takes on additional responsibilities during
an oil discharge. On April 29th, 2010, the Secretary of DHS, Janet Napolitano, declared the
Deepwater Horizon oil spill a Spill of National Significance (SONS). Pursuant to Title 40 of the
CFR, after a discharge is declared a SONS the commandant of the USCG may name a National
Incident Commander (NIC) for spills in a coastal zone. The NIC coordinates resources,
facilitates collaboration with the involved parties, and ensures adherence to national policies. The
NIC may also act as the Federal On-Scene Coordinator (OSC) or may appoint an OSC. The
Federal OSC “directs response efforts and coordinates all other efforts at the scene.”
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The USCG ordinarily chairs the National Response Team (NRT) for spills in a coastal
region and assigns roles to the NRT members, who currently represent 16 federal departments
and agencies. However, the Obama Administration announced that the NRT will be led by the
Homeland Security Secretary. This is permitted through Homeland Security Presidential
Directive 5.39. The NRT oversees the Regional Response Teams (RRT), which are composed of
regional representatives, such as members of state and local governments. The NRT is part of the
National Response System (NRS) – a multi-tiered and coordinated national response strategy for
addressing oil spills established under the National Contingency Plan. See Figure 2.
Figure 2: Tiers of National Response
SECTION 311(D)
CLEAN WATER ACT
NATIONAL
CONTINGENCY PLAN
NATIONAL RESPONSE
SYSTEM
NATIONAL RESPONSE
TEAM
REGIONAL RESPONSE
TEAMS
Source: Jacob Boomsaad
Finally, the USCG, through its National Pollution Funds Center (NPFC), administers
funds from the Oil Spill Liability Trust Fund (OSLTF). The OSLTF is used for immediate costs,
such as responding to and removing oil spills, payment of costs incurred during assessment of
natural resource damages, and other operational costs related to an oil spill. The OSLTF will pay
for the costs of natural resource restoration, should the responsible parties choose not to pay.
Any amounts reimbursed to the OSLTF by the responsible parties are paid directly into the Fund.
The Environmental Protection Agency
While the EPA is the principal federal response agency for land-based oil spills, the
majority of the EPA’s work in the Deepwater Horizon spill has been support-based. EPA is
collecting and monitoring samples of air, water and sediment, as well as effects of the
dispersants used to dissipate the oil. The EPA is also required to oversee the implementation of
Clean Water Act investigations and penalties. Finally, the EPA is further bound by the National
Environmental Policy Act (NEPA) to review and comment on any Environmental Impact
Statements (EIS) issued by any federal agency. However, the EPA does not have the power of
enforcement. Thus, although the EPA would have seen and commented on the Categorical
Exclusion issued by the MMS for the Deepwater Horizon, the EPA could not have affected any
change.
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HOW THE DAMAGE IS CALCULATED
The responsible party must pay for the cost of assessing the damages and all removal
costs incurred. The damages are calculated using the sum of the measure of three parts. The first
part consists of the cost of restoring, rehabilitating, replacing, or acquiring the equivalent of the
damaged natural resources. The second part considers the diminution in value of those natural
resources pending restoration. The third part takes into account the cost of assessing those
damages. All damages are assessed by the NOAA’s Damage Assessment Remediation and
Restoration Program (DAARP) using the Natural Resource Damage Assessment (NRDA) and
are ultimately decided on by the appointed federal, state, and Indian trustees, with input from the
public. The DAARP consists of a large team of scientists, lawyers and NRDA trustees.
Data Collection
Data collection is coordinated by the DAARP, using technical working groups, composed
of scientists, researchers and other experts. These groups carry out field studies to determine
base-level conditions as well as post-impact field studies. Shorelines are surveyed using aerial
imaging and task force groups. In addition, dead or injured animals are also tabulated and
carefully recorded. During the Exxon Valdez oil spill, a large problem in assessing the oil impact
was due to the fact that very little baseline data existed for Prince William Sound. OPA 90
mandated that regular scientific studies be carried out by a newly-created Interagency
Coordinating Committee on Oil Pollution Research (also known as the Interagency Committee)
and the well-being of environmentally-sensitive areas be reported biennially to Congress. Among
other advancements, the Interagency Committee, headed by the USCG, identified
environmentally sensitive areas and compiled them in a database for reference. See figure 3.
Figure 3: Environmental sensitivity index (ESI) database
Source: Environmental Sensitivity Index (ESI) Maps
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A significant project being undertaken involves chemical fingerprinting as the method of
identification for petroleum residues. Chemical fingerprinting involves a relatively new branch
of chemistry called petroleomics and characterized by petroleum and petroleum product analysis,
with the intent of determining the properties and behaviors of those products. The field of
petroleomics allows for matching of petroleum product, even after changes to its chemical
composition, due to evaporation and dissolution. For the BP spill, the researchers are able to
predict how the composition will change due to evaporation, contact with seawater,
biodegradation, etc. The chemical fingerprinting will be used in the NRDA and will also be
useful to BP when determining limits of liability.
Natural Resource Damage Assessment
The NRDA regulations were designed to meet the OPA 90 goals of restoring natural
resources to baseline condition and compensating the public for the interim losses from the time
natural resources are injured until they are restored to baseline condition. Although these phases
are carried out under the DAARP, the final decision-making rests not with the NOAA but with
the Trustee Council appointed to oversee the process. The Trustee Council includes
representatives from nearly a dozen federal agencies and an equal number of state and tribal
representatives.
The NRDA regulations consist of a three phase process: Preassessment Phase,
Restoration Planning Phase, and Restoration Implementation Phase. The purpose of the
Preassessment Phase is to determine if the Trustee Council has jurisdiction to conduct restoration
planning. If trustees determine that there is jurisdiction to pursue restoration under NOAA
regulations, trustees must determine whether: 1) Injuries have resulted, or are likely to result,
from the incident; 2) Response actions have not adequately addressed, or are not expected to
address, the injuries resulting from the incident; and 3) Feasible primary and/or compensatory
restoration actions exist to address the potential injuries. Once the parameters of jurisdiction and
necessity have been resolved, the Trustee Council is required to issue a “Notice of Intent to
Conduct Restoration Planning.”
The Restoration Planning Phase is to evaluate potential injuries to natural resources and
services and use that information to determine the need for, and scale of, restorative actions. The
restoration planning phase has several components: injury assessment, quantification of injury,
consideration of restoration alternatives, scaling of restoration activities, selection of a
restoration plan, and the submission of a Programmatic Environmental Impact Statement. The
final plan chosen by the Trustee Council is considered a legally-enforceable decision.
As the injury assessment nears completion, the Trustee Council will begin developing the
restoration plan. The restoration plans are classified as either primary or compensatory. Primary
restoration actions are those actions taken to restore the natural resources to their baseline
condition, including natural recovery. Compensatory restoration plans are made up of those
actions taken to compensate the public for the interim losses of natural resources and the services
provided by natural resources in the interim period of recovery. Compensatory restoration
usually involves enhancing resources or providing replacement resources, such as building a boat
ramp in an area where the public lost recreational fishing for a period of time.
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Removal of Oil and Cleanup Techniques
A large portion of the oil spill cleanup is conducted through the guidance of the NOAA’s
Shoreline Cleanup and Assessment Technique (SCAT). SCAT is a systemic and standardized
approach to collecting data on the shore conditions, and serves as a tool to provide
recommendations for cleanup operations. In the case of the Deepwater Horizon oil spill, the
overall response was conducted in three overlapping phases. Phase I consisted of on-water
recovery operations. This phase may be ongoing in wetland areas long after the oil is no longer
on the surface of the ocean. Oil is removed using skimming systems, vacuum systems and
booms. Stage II activities use the same techniques to remove oil bulk but in more intertidal areas,
with an emphasis on the surface oil thickness and percent distribution. Phase III consists of
shoreline surveys using aerial surveillance and ground observations. This phase sees the
characterization of coastline contamination, based on nature and degree, the recommendation of
cleanup techniques and endpoints, and preparation of formalized cleanup recommendations. The
final phase uses an eight-step process consisting of:
1) Conduct reconnaissance survey
2) Segment the shoreline
3) Assign teams and conduct shoreline surveys
4) Develop cleaning guidelines and endpoints
5) Submit reports and sketches to the Planning Section
6) Monitor effectiveness of cleanup
7) Post-cleanup inspections
8) Do final evaluation of cleanup activities
Figure 4: Processes affecting spilled oil in an ocean
Source: The International Tanker Owners Pollution Federation Limited. Fate of Marine Oil Spills.
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Estimated Cost of Cleanup
In the aftermath of the Exxon Valdez spill, Exxon spent approximately $ 2.1 billion in
cleanup efforts. The United States charged the company with criminal violations of the Clean
Water Act, the Refuse Act of 1899, the Migratory Bird Treaty Act, the Ports and Waterways
Safety Act, and the Dangerous Cargo Act. Under the Clean Water Act alone, BP faces fines of
up to $1,100 for each barrel of oil spilled. If BP is found to have committed gross negligence or
willful misconduct, the fine could be up to $4,300 per barrel. This leaves a possible range of
CWA fine of $5.4 billion and $21.1 billion.
The total cost at the end of 2010 was nearly $41 billion, with some predicting the overall
cost to top $63 billion. One positive aspect of the situation is that OPA 90 explicitly forbids
double recovery for natural resource damages, including the costs of damage assessment or
restoration, rehabilitation, replacement, or acquisition for the same incident and natural resource.
It is also important to note that the $20 billion escrow account established shortly after the spill is
reserved for individual claims, unrelated to the environmental damages.
Extent of liability
When assigning liability under the OPA 90 or CWA, the responsible parties held to
account are the owners or operators of the offshore facility. Both OPA 90 and CWA have
defined “owner or operator” as “any person who owns, operates, leases, controls or supervises a
source of pollution.” In the court documents filed by the DOJ, eight of the nine defendants are
listed as owners or operators of the Deepwater Horizon MODU or the exploration lease. The
DOJ used such evidence as assignments of record title interest (also known as working interest),
joint operating agreements (JOA), and the lease exchange agreements to show that the
defendants (excluding their insurer, Lloyd’s of London) are all co-lessees.
In accordance with OPA 90, owners or operators of offshore facilities are required to
establish and maintain evidence of financial responsibility sufficient to pay for damages resulting
from an oil discharge. The requirement is usually met by owners or operators submitting a
Certificate of Financial Responsibility (COFR) from an insurer to the USCG. The Deepwater
Horizon COFR was underwritten by Lloyd’s of London. The evidence of financial responsibility
required by section 1016 of the OPA 90 limits the insured amount to $150 million or less.
Lloyd’s’ financial responsibility in the Deepwater Horizon spill is thus limited by the COFR to
$150 million. This leaves the rest of the removal and restoration costs to the other eight
responsible parties.
The Danger of Negligence
Under OPA 90, liability for an oil spill from a MODU is determined by multiplying the
facility’s gross tonnage by $2,000 and adding removal costs. For offshore facilities liability is
capped at $75 million plus removal costs. However, the cap may be waived if the spill follows
gross negligence or willful misconduct, or violation of a federal safety or operating regulation.
BP has voluntarily waived the limit of liability. In addition to the cost of damages, each of the
defendants is subject to a judicially-assessed civil penalty under CWA of no less than $140,000
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and not more than $4300 per barrel. “The CWA penalties for the Deepwater Horizon oil spill
range from $5.6 billion for ordinary negligence with a potential of up to $21.9 billion if there is a
finding of gross negligence or willful misconduct.” In November 2012 BP pleaded guilty to 14
counts of criminal conduct. Under its DOJ agreement, BP will pay $4.5 billion for various
infractions, including $525 million to the Securities and Exchange Commission for misleading
investors about the oil flow rate.
Joint and Several Liability
Under OPA 90 and CWA, environmental damage liability is strict, joint and several.
Strict liability assigns liability regardless of fault or blame. Joint and several liability enables the
plaintiff to “collect the entire amount of damages from one or any combination of” the co-lessees
up to the total amount of the damages. This provision even allows a party responsible for 1% of
the damage to be required to pay the entire amount. In the event the co-lessees are held jointly
and severally liable, one or more parties may have the right of contribution from the other
responsible parties. The right of contribution allows the defendant who has already paid a
disproportionate amount of the damages to insist that the other defendants reimburse him for
some of the cost.
Defenses and Mitigating Factors
In most cases of oil spills, the Trustee Council and responsible parties will come to a
settlement agreement regarding natural resource damages, as long as the terms of the settlement
are “fair, reasonable and in the public interest.” This would also include fines under CWA.
Because a settlement will release BP from any further liability, the settlement may include a
reopener clause, which consists of money set aside in the event that natural resource damages are
discovered at a later date. The responsible parties may also settle with individual states for
natural resource damages, although double recovery is not allowed under OPA 90.
One factor in favor of BP are that the MMS granted a CE from NEPA environmental
review requirements since 2004. This action seems to indicate that the MMS expected the
probability of oil discharge to be so low that that the drilling lease did not warrant an
environmental review of their activities. Additionally, the Deepwater Horizon MODU received
the highest award for safety in 2009 from the MMS. The safety award would seem to indicate
that the Deepwater Horizon served as an industry standard with regard to safety. This is an
important point to consider when determining financial remuneration. In the Exxon Valdez case,
Exxon paid $900 million in natural resource damages, and $125 million in fines (not including
the punitive damages for the inebriated captain). BP has paid $2.1 billion in natural resource
damages, and faces fines ranging from $5 billion to $21 billion under the CWA.
In the months following the Deepwater Horizon oil spill, the aspects of deepwater
offshore drilling and maritime liability were hotly debated. Fifteen congressional committees
held scores of hearings on Capitol Hill. More than one hundred fifty bills were sponsored in the
House and Senate – ranging from removal of a liability cap to increased oversight over the
offshore drilling process. Of the one hundred fifty laws proposed after Deepwater Horizon, only
one passed. That law, enacted in 2012, does not govern safety regulations, drilling procedures, or
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limits of liability. Instead, the law is directed to the activities of the Treasury Department.
Surprisingly, when someone pays a fine under the CWA, there is no obligation to apply that
money to environmental cleanup. The money simply goes to the Treasury Department. The
“Resources and Ecosystems Sustainability, Tourist, Opportunities, and Revived Economies of
Gulf Coast States Act of 2012,” also known as the RESTORE Act, directs the Treasury
Department to apply 20% of the Deepwater Horizon CWA fines to the OSLTF and 80% to a
trust which will distribute the money to affected states and various Gulf restoration projects.
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