Although President Obama has been criticized for “shaking down” BP over creation of a $20 billion relief fund, the actual terms of the agreement give the oil company important advantages over the government, according to an independent Washington watchdog group.
BP this week made an initial $3 billion deposit into that fund, from which the company will pay damage claims stemming from its monster Gulf Coast oil spill.
The company agreed to create the relief fund in June under pressure from top White House officials and congressional Democrats.
Tyson Slocum, director of the energy program at Washington-based Public Citizen, obtained a copy of the governnment’s agreement with BP and the deal could well let the energy giant off the hook, he says based on an analysis of the fine print.
The trust agreement is not with the parent BP company, but rather with BP Exploration & Production, Inc., which is a subsidiary of a subsidiary five steps removed from the main corporation, Slocum says.
Setting the agreement with such a small part of the BP corporate structure “provides the government with limited access to assets with which to secure adequate collateral for the BP Oil Spill Victim Compensation Fund,” he says.
BP Exploration & Production Inc is the subsidiary that operated the Deepwater Horizon exploration rig which exploded and caused the oil spill in the first place.
Therefore, the Justice Department, and other federal and state agencies most likely will focus criminal and civil proceedings against this subsidiary, Slocum says. Public Citizen forecasts likely conflicts arising if Justice officials seek to bring criminal charges with the threat of potential sanctions -– including revocation of BP Exploration & Production leasing rights in the Gulf of Mexico -– with the government’s interest in enforcing the terms of the trust agreement.
Enforcing the agreement necessitates continued access to Gulf leases by BP Exploration & Production, Inc., Slocum’s analysis finds.
Numerous safety problems have been identified at BP as being the cause of the explosion and resulting oil gusher at BP’s Macondo site. The government’s trust agreement with BP requires that the company maintain a “robust and possibly expanded presence” in the Gulf of Mexico despite these managerial safety issues, the Public Citizen analysis concludes.
The group says it envisions potential conflicts of interest where regulatory concerns with BP’s offshore drilling operations may conflict with the government’s interest in continuing to allow BP offshore oil production to continue in order to provide the collateral for the trust agreement.
“While the Trust agreement allows for [fund] Trustees to negotiate additional collateral, the agreement is only with a subsidiary quite distant from the parent company –- one that the parent company failed to include on its list of ‘more important subsidiaries,'” the analysis says.
The agreement provides no mechanism to require BP to provide additional financing should the $20 billion be inadequate to meet all damage claims, Public Citizen finds.
“Given the fact that the $20 billion fund must cover claims from victims and local and state governments, and be used for coastal and marine restoration, it is probable that the amounts in the fund will be prematurely exhausted,” Slocum’s analysis says.
The deal also contains a “scheduled expiration date” of April 30, 2016, with limited opportunities for the independent trustees of the fund to extend the deadline beyond this date, Public Citizen says.
Public Citizen says it is concerned that such a relatively short expiration date “precludes adequate assessment of long-term health, economic and natural resource damages from the oil gusher,” which is the worst disaster of its kind in U.S. history.
The publisher of the news site On The Hill, Scott Nance has covered Congress and the federal government for more than a decade.