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BP O IL S PILL P ART I “S TATUS & I SSUES OF C OMPENSATION AND P ENALTY D OLLARS FROM THE D EEPWATER H ORIZON D ISASTER ” 63 RD A NNUAL S PRING M EETING.

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Presentation on theme: "BP O IL S PILL P ART I “S TATUS & I SSUES OF C OMPENSATION AND P ENALTY D OLLARS FROM THE D EEPWATER H ORIZON D ISASTER ” 63 RD A NNUAL S PRING M EETING."— Presentation transcript:

1 BP O IL S PILL P ART I “S TATUS & I SSUES OF C OMPENSATION AND P ENALTY D OLLARS FROM THE D EEPWATER H ORIZON D ISASTER ” 63 RD A NNUAL S PRING M EETING OF GSMFC by Semoon Chang, Chief Economist Gulf Coast Center for Impact Studies March 19, 2013; Destin, Florida

2 June 13(Sun), 2010

3

4 T ABLE OF C ONTENTS (S EMOON ’ S DRAFT PAPER ) I. BP Claims Process II. Gulf Coast Claims Facility of Aug, 23, 2010 II-1. GCCF Final Rules and Payment Methodology II-2. ARPC Methodology II-3. First Modification to the Final Rules II-4. Second Modification to the Final Rules II-5. GCCF One Year Later II-6. Order and Reasons III. Settlement of April 18, 2012 III-1. Settlement Class III-2. Settlement Categories III-3. Causation Requirements for Business Economic loss Claims III-4. Causation Requirements for Individual Economic loss Claims III-5. Risk Transfer Premiums III-6. Preliminary Approval of the Settlement IV. RESTORE Act of July 16, 2012 V. Idle Iron Notice of October 2010 Vi. BP Criminal Claims Settlement of Nov. 15, 2012 ViI. Conclusions Selected References Appendices:

5 K EY DATES I 2008 March BP purchases the rights to drill at Macondo well April 6US Dept of Interior exempts BP from detailed EIS after concluding massive oil spill unlikely 2010 April 209:45 pm CDT Deepwater Horizon explodes; killing 11, injuring 17, & 98 no serious injury May 27 Obama announces six-month moratorium on new deep water oil drilling permits in 500 feet (150 m) of water or more June 7Complaint filed against the poratorium: Hornbeck Offshore Services v. Salazar

6 K EY DATES II ( CONTINUING 2010) June 22 U.S. District Court for the Eastern District of LA issues restraining order against the moratorium July 8 U.S. Court of Appeals for the Fifth Circuit refuses to overturn moratorium July 10Salazar issues new moratorium effective until November 30 August 23GCCF assumes responsibility on claims Oct. 12Obama administration lifts the moratorium on deep water oil drilling in the Gulf, weeks before midterm elections Dec. 15U.S. DOJ files a lawsuit against BP and 8 other companies for cleanup expenses, ad environmental recovery including damages to natural resources; it also seeks civil penalties under the Clean Water Act.

7 K EY D ATES III 2011 Feb. 18GCCF publishes Final Rules on Payment Options, Eligibility, etc 2012 April 18 MDL “Final Settlement” announced July 6The "Resources and Eco systems Sustainability, Tourist Opportunities, and Revived Economies of the Gulf Coast States Act of 2011" ( RESTORE ) Nov. 15 $4.5B plea deal on criminal fines against BP announced 2013 Jan. 3$1.4B plea deal on criminal abd civil fines against Transocean (owner of the rig) announced Jan. 29U.S. District Judge Sarah Vance of New Orleans approves the $4.5 (4.0?) plea deal.

8 S COPE OF C LAIMS TO GCCF AS OF M AY 1, 2012 _________________________________________________ State of Submitted Paid Claims Amount Paid Residence Claims ____________________________________________ Louisiana 377, ,123$ 1,815,692, Florida 370, ,821 $ 2,383,420, Alabama 143,531 55,117 $ 949,268, Mississippi 110,408 34,776 $ 566,460, Texas 25,042 6,723 $ 246,750, Others 49,839 22,259 $ 382,933, __________________________________ Total 1,076, ,819$ 6,344,526, _________________________________________________ Source: Gulf Coast Claims Facility, May 1, 2012.

9 Will review Selected Issues

10 “F INAL R ULES ” BY GCCF Three Payment Options: Final, Interim, & Emergency Payment In principle, documented losses based on a comparison to income from prior years for the same months Appearance more than substance(?) Introduction of Future Recovery Factor : “a Future Recovery Factor of 1.0 (two times the actual documented losses) in 2010 is fair and reasonable.” for losses less than $500,000.

11 ARPC M ETHODOLOGY IN “F INAL R ULES ” GCCF relied on ARPC (Analysis-Research- Planning) of Washington DC Attachment A, dated August 16, 2011, titled “ARPC Methodology for Calculating Interim Payments for 2011 Losses Due to the Oil Spill”. NAFE had no chance! Required: “all claimants demonstrate a revenue and/or earnings growth rate of at least 5% from If the claimant demonstrates a growth rate of at least 5% from 2010, the losses would be presumed to be due to the Oil Spill.” No evidence of growth rates being challenged.

12 T HE S ETTLEMENT : M ULTI -D ISTRICT L AWSUITS OFFICIAL CITATION “Deepwater Horizon Economic and Property Damages Settlement” U.S. District Court, Eastern District of Louisiana MDL NO. 2179, SECTION J Related to: Bon Secour Fisheries, Inc., et al., individually and on behalf of themselves and all others similarly situated, Plaintiffs, v. BP Exploration & Production Inc; BP America Production Company; BP p.l.c., Defendants. Civil Action No , Section J Document Filed 04/18/12

13 S ETTLEMENT C ATEGORIES (A) Seafood Compensation Program (B) Economic Damage Compensation that applies to “businesses, or to self-employed individuals (C) Subsistence Damage Compensation that applies to those “who fish or hunt to harvest, catch, barter, consume or trade Gulf of Mexico natural resources (D) VoO Charter Payment (E) Vessel Physical Damage Compensation (F) Coastal Real Property Damage Compensation (G) Wetlands Real Property Damage Compensation; and (H) Real Property Sales Damage Compensation

14 S PILLIONNAIRES ( OWNERS OF SEVERAL VESSELS ) Under the (D) VoO Charter Payment program, “WORKING VoO PARTICIPANTS are entitled to the following payments, based on boat size, representing pay for 26 days’ work: Boat Size Amount of Compensation Less than 30 feet $41, feet-45 feet $49, feet-65 feet $62,400 Greater than 65 feet $88,400 “NON-WORKING VoO PARTICIPANTS: Boat Size Amount of Compensation Less than 30 feet $4, feet-45 feet $5, feet-65 feet $7,200 Greater than 65 feet $10,200

15 “ N O C ONSCIENCE ” C OMPENSATION : ( FOR LAWYERS ?) EVIDENCE OF CAUSATION NOT REQUIRED (a) businesses (and their employees) in Zone A (b) “Landing Site,” or “Commercial Wholesale or Retail Dealer A,” or “Primary Seafood Processor” (c) “Commercial or Wholesale or Retail Dealer B,” or a “Secondary Seafood Processor,” or a “Seafood Wholesaler or Distributor,” or a “Seafood Retailer” in Zone A, B or C (d) businesses meeting the “Tourism Definition” in Zone A or Zone B; and (e) businesses meeting “Charter Fishing Definition” in Zone A, B or C. Businesses in Zones B, C and D not entitled to the presumption of no requirement of evidence must demonstrate “ revenue patterns ” stated in the Settlement.

16 R ISK T RANSFER P REMIUM (RTP) RTP means “the amount paid to a Claimant for any and all alleged damage, including potential future injuries, damages or losses not currently known..” For example, “if the Compensation Amount is $1, and the RTP is 2.5, then $1 is multiplied by 2.5, which product is then added to the $1 to reach the total amount of compensation ($1 + $2.50 = $3.50 in total compensation)” RTP figures are yet to be challenged.

17 S ELECTED RTP S E XHIBIT 15 OF THE S ETTLEMENT

18

19 T HE RESTORE A CT OF J ULY 16, 2012 The " R esources and E co systems S ustainability, T ourist O pportunities, and R evived E conomies of the Gulf Coast States Act of 2011“ Establish the Gulf Coast Restoration Trust Fund; 80 percent of all administrative and civil penalties in accordance with section 311 of the Federal Water Pollution Control Act.

20 “C AN BE SPENT BY STATE AND LOCAL GOVERNMENT OFFICIALS ” ( ON EVERY THING ?) (I) Coastal restoration projects and activities. (II) Mitigation of damage to, and restoration of, fish, wildlife, or natural resources. (III) Implementation of comprehensive conservation management plan, including fisheries monitoring. (IV) Programs to promote tourism in a Gulf Coast State. (V) Programs to promote the consumption of Gulf seafood. (VI) Programs to promote education regarding the natural resources. (VII) Planning assistance. (VIII) Workforce development and job creation. (IX) Improvements to or upon State parks. (X) Promotion of the long-term ecological or economic recovery. (XI) Coastal flood protection and infrastructure. (XII) Administrative costs.

21 P OLITICS In Sept., 2012, the DOJ made a proposal that “would divert a greater portion of the fines toward a Natural Resource Damage Assessment (NRDA), reducing the amount paid in civil penalties for violating the Clean Water Act. … They’re also tax deductible – a major incentive for BP. Clean Water fines, by comparison, are not deductible and would flow primarily to the five Gulf Coast states through the Restore Act … In comparison to the Restore Act, Alabama, Mississippi and Texas are likely to lose, while Florida and Louisiana will gain.” (Press-Register October 3, 2012)

22 BP C RIMINAL C LAIMS S ETTLEMENT OF $4.5B settlement between U.S. and “all criminal claims” against BP (no waiver); $150M against Exxon Valdez (1989) of which $125M waived. (a) $2.4 billion to the National Fish and Wildlife Foundation (b) $1.3 billion in criminal fines, which could go to the U.S. Coast Guard’s Oil Spill Liability Trust Fund (c) $525 million to the Securities and Exchange Commission to settle criminal charges that BP misled investors; and (d) $350 million to the National Academy of Sciences “How that money gets divided among the states remains uncertain” (Press-Register, Nov , 6A)

23 B ROAD P ROGRESSIONS TO SUMMARIZE Criminal lawsuits by US (against BP;others) $4.5+B MDL civil lawsuits into the Settlement $7.8B Civil lawsuits outside the MDL Settlement (states; private) $??? Civil fines (Clean Water Act and Oil Pollution Act) through the RESTORE Act $5B to over $20B Fines if BP is guilty of: simple negligence – $1,000 per barrel gross negligence - $4,300 per barrel And then …

24 P ARTING W ORD : L OSS OF P UBLIC G OODS Virtually, the entire compensation has been left to the litigation and negotiation by the U.S. Department of Justice with no mention of Future Recovery Factor or Risk Transfer Premiums. When the amount of fines is determined before any valuation of public goods is made, and when the local distribution of fines and contributions is determined almost exclusively by local politicians and leaders of the tourism industry, it is interesting to see how much more useful the valuation based on stated preference methods is than no number, contrary to claims made by Kling, Phaneuf, and Zhao “From Exxon to BP: Has Some Number Become Better than No Number?” Journal of Economic Perspectives, Fall 2012, 3–26.

25 BP O IL S PILL P ART II “N EW I DLE I RON N OTICE R EQUIREMENT T HAT L EADS TO D ECOMMISSIONING OF O LD O IL /G AS P LATFORMS ” 63 RD A NNUAL S PRING M EETING OF GSMFC by Semoon Chang, Chief Economist Gulf Coast Center for Impact Studies March 19, 2013; Destin, Florida

26 MMS S TUDY J ULY 2007 Operators also have a strong economic incentive to maintain structures offshore: to defer the cost of removal to increase the opportunity for resale to reduce the risk and expense of storing platforms in a fabrication yard to maintain a hedge against future development opportunities, and to reduce the overall cost of decommissioning through economies of scale, scheduling, and shared mobilization. Then, oil spill of April 20, 2010 and Announcement on September 15 by Buearu of Ocean Energy Management to be effective on October 15, 2010.

27 TERMINOLOGIES “idle iron” - wells, platforms and pipelines that are no longer producing or serving exploration or support functions related to the company’s lease. “decommissioning” - a process that involves plugging wells and dismantling and removing platform structures and pipelines in a timely manner’ Law until Sept. 15, 2010 announcement: Idle iron should be removed “no later than one year following the expiration of the lease.” The new NTL (notice to lessees) became effective Oct. 15, 2010.

28 A CTUAL D OCUMENT T ITLE UNITED STATES DEPARTMENT OF THE INTERIOR BUREAU OF OCEAN ENERGY MANAGEMENT, REGULATION AND ENFORCEMENT GULF OF MEXICO OCS REGION NTL No G05 Issue Date: September 15, 2010 Effective Date: October 15, 2010 Expiration Date: October 14, 2013 NOTICE TO LESSEES AND OPERATORS OF FEDERAL OIL AND GAS LEASES AND PIPELINE RIGHT-OF-WAY HOLDERS IN THE OUTER CONTINENTAL SHELF, GULF OF MEXICO OCS REGION Decommissioning Guidance for Wells and Platforms

29 T HE I DLE I RON N OTICE T O L ESSEES (NTL 2010 G05) OF O CTOBER “Under the 2010 rules, wells that hadn't been used for five years were to be abandoned or “zonally isolated” within three years after Oct. 15, If wells were zonally isolated, operators had two additional years to abandon them. Platforms and supporting infrastructure that were idle for five years or more were to be removed within five years from mid-October 2010.” (Susan Buchanan, “Push Is On To Declutter Gulf of Idle Iron,” MarineNews, August 1, 2012)

30 M ARK J K AISER OF LSU “D ECOMMISSIONING ACTIVITY FORECAST HIGH FOR G ULF OF M EXICO S OCIAL M EDIA T OOLS ” IN O IL & G AS J OURNAL, N OV. 7, 2011; WWW. OGJ. COM.

31 O FFSHORE S TATISTICS BY BSEE These statistics reflect data through :44:48 AM (CST) Water Depth Active Approved Active in Meters Leases Applications Platforms to Drill 0 to 200 1,75634,7732, to , to to and Above 3,4101,80825

32 W IDELY -V ARYING C OST E STIMATES $1.8 to $3.6 billion to remove structures in the Gulf of Mexico. (Mark J Kaiser of Center for Energy Studies, Louisiana State University, Lillehammer Energy Claims Conference, March 2-4, powerpoint) $5 billion in the Gulf of Mexico, $12 to $15 billion in North Sea, and $5 to $40 billion worldwide. (“Proceedings: Public Workshop Decommissioning and Removal of Oil and Gas Facilities Offshore California: Recnt Experience and Future Deepwater Challenges”, Vetura, California, September 23-25, 1997, p. 20) $4 million to $10 million to decommission individual oil and gas installations “in the shallow water Gulf of Mexico.” (http://www.rigzone.com, accessed December 22, 2012)

33 N EWS R ELEASE S EPT. 14, 2013 BY S ECRETARY OF THE I NTERIOR K EN S ALAZAR AND B UREAU OF O CEAN E NERGY M ANAGEMENT, R EGULATION AND E NFORCEMENT D IRECTOR M ICHAEL R. B ROMWICH “will require oil and gas companies operating in the Gulf of Mexico to set permanent plugs in nearly 3,500 nonproducing wells that are currently completed with a subsurface safety valve in place and dismantle about 650 oil and gas production platforms if they are no longer being used for exploration or production.”

34 S ELECTED GOM FIRMS CAPABLE OF DOING D ECOMMISSIONING WORK Bisso Marine of Houston and New Orleans Versabar of Houston and New Orleans Resolve Marine Group of Fort Lauderdale Manson Gulf of Houma Marine Salvage Firms TITAN Salvage of Florida D&L Salvage & Marine Services of the Port of West St. Mary in Franklin (LA)

35 P OSSIBLE I MPACT & ISSUES RELATING TO GSMFC ( O NLY QUESTIONS, NO ANSWERS – N EED J OINT S TUDY AMONG MFC PARTNERS ? ) Basics How many active rigs by age by state How many idle rigs by age from the date of capping by state How many, and which, capped rigs are used as artificial fishing reefs by commercial and recreational fishermen? Review of old laws of decommissioning within 12 months of expiration the the lease Develop removal timeline of capped rigs by state Determine impact of the removal on the fishing industry Commercial fishing recreational fishing If the old platforms were used mainly by recreational fishermen, will their removal lead recreational fishermen to commercial stock and make the conflict between commercial and recreational fishermen worse?

36 P OSSIBLE IMPACT ON THE BUSINESS COMMUNITY IN THE G ULF C OAST Determine the potential dollar amount from decommissioning business Can the information be related to coastal businesses for possible preparation and participation in the decommissioning business Project long-term year by year business volumes for coastal businesses Key question: Are these ideas, i.e., is the impact of the new regulation, worth the efforts of GSMFC or coastal Sea Grant Consortiums?

37 37 Chapter 2 Thank You!


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