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Q&A: HOW DAMAGES COULD UNFOLD

Q. WHO COULD BE SUBJECT TO PENALTIES?

A. The US Justice Department has launched both a criminal and civil investigation into the oil spill but officials have not identified the targets. However, the likely com­panies that will be the focus of the investigation include BP, Transocean, which operated the drill rig, Cameron International, which ­provided the blowout preventer, and Halliburton, which was in charge of the cement for the oil well.

Q. WHAT ARE THE LAWS AND FINES?

A. In addition to the payments for the clean-up and recovery from the biggest oil spill in US history, the companies that are deemed respon­sible for the oil spill could be subject to penalties under a number of laws. They include the Clean Water Act, which makes it illegal to discharge any pollutants into major bodies of water such as the Gulf; the Migratory Bird Treaty Act, which ­protects migratory birds and makes it illegal to harm some 836 species of birds as well as their nests and eggs; the Endangered Species Act, which makes it illegal to harm or kill any animal or plant on the endangered species list, including acts that change or degrade the habitat, feeding or breeding; and criminal violations, which could be assessed and could be as much as double the economic loss and recovery costs. Those penalties are likely to be negotiated.

Q. WHAT ARE THE POSSIBLE TOTAL FINES?

A. The White House has already estimated the costs for the response, clean-up and penalties will reach into billions of dollars. Before the new flow rate of up to 40,000 barrels (1.68m gallons) per day was revealed, some financial analysts estimated the Clean Water Act fines could stretch from $700m (£473m) to as much as $4.2bn.With the new ­estimates, as much as 2.28m barrels (84m gallons) of oil may have spilled from the well over the 57 days since it ruptured on 20 April. Based on one estimate, the range of civil penalties could be between $2.5bn and $9.8bn under the Clean Water Act alone. Penalties could be applied to each company found responsible for the leak, although one expert said they would likely share the burden instead. “At some point there is a limit to how much BP is going to be able to pay,” said professor David Uhlmann of University of Michigan Law School.

Q. HOW DOES THIS COMPARE WITH PAST CASES?

A. The closest comparison available is the Exxon Valdez incident in 1989 when 260,000 barrels of oil spilled into Alaska’s Prince William Sound. Exxon ended up paying $125m in criminal penalties as well as $900m in civil penalties and ­damages. In 2006, more than 5,000 barrels of oil spilled onshore on Alaska’s North Slope due to a leak in a BP-owned pipeline. The company was fined $20m for negligence under the Clean Water Act.

Q. CAN THE COMPANIES AFFORD IT?

A. Questions have been raised whether the companies can afford the cost of the clean-up, reco­very and penalties. Most experts ­consider the chances of default to be small. BP had net income of $16.8bn in 2009 and $6.8bn in cash and cash equivalents at end of first quarter of 2010.

Q. COULD THE COMPANIES ­NEGOTIATE A SETTLEMENT?

A. Put simply, yes. As has occurred in the past cases, the responsible parties could try to negotiate a plea agreement and civil settlement with the Obama administration over the charges, damages and penalties rela­ted to the oil spill. Exxon and BP have negotiated pleas in similar spill cases and experts have said that could, and likely will, happen in this disaster. There are a couple of factors that could play into any negotiation. One is the growing tension between the Obama administration and BP, including about whether the com­pany has been as forthright as possible in the eyes of the government. A second factor is that BP has been held criminally liable for past acts, including the spill in Alaska and a fatal explosion at a refinery in Texas. Then, BP negotiated with the US government rather than face a court battle. “There’s no question that BP will pay a larger criminal fine for its role in the Gulf oil spill than they would have had they not had a ­criminal history,” Uhlmann said.

Q. WHEN WOULD ACTION TAKE PLACE?

A. Experts have said the investigation and possible settlement negotiations could take years and depend on how adversarial the situation gets between the companies and the government. In comparison, the government is still pursuing about $92m from Exxon for Valdez.