There was a really interesting set of comments/observations by a retired oil lawyer, retiredL, on theOilDrum.com in the comment threads of today’s main topic, Deepwater Oil Spill – the BP CEO and Congress – and Open Thread:.

This is one of those things that would just get lost in the shuffle if I don’t post it here, so I want you guys to see this. I think he’s giving a more or less clear view of the realities of how the legal parts of this situation will proceed, as well as of what is going on internally, more or less, inside of BP now.

Although retiredL made a few technical errors in terms of spill rate and volume, his overall understanding of how oil companies work internally is well worth a very close look, as well as his conclusions about how things will turn out.

Because this is a very long posting, here’s the summary, found at the bottom of the full posting:

BP’s only concerns are protecting its property and limiting liability. Those concerns will be defined by laws and actuarial tables, not by common sense; so, they will pay attention to technical solutions only as far as those solutions accomplish those goals. Our society is far too dependent on Big Oil to risk damaging or driving an oil corporation out of existence. As with the Exxon Valdez, any punishment for BP’s behavior will gradually be reduced over to time to a point where BP still feels welcome in American waters.

I’m skipping most of the comments in this discussion because what is interesting is what retiredL says, not what people comment on via their opinions about law or lawyers. I’ve highlighted a few of the more relevant passages.

retiredL on June 18, 2010 – 10:20am Permalink | Subthread | Comments top

First time poster; I’ve been reading Oil Drum for years. Some of this I posted to the other thread right before it closed, so please excuse the repeat.

I hate to tell you, but the people calling the shots on this are lawyers and accountants. BP took off its “engineering hat” and put on its “managing hat” a long time ago; that’s why the spill happened in the first place.

Anything proposed by technicians, engineers, etc. is going to be vetted by lawyers and accountants first… including the scripted “Oops!” moment of the BP spokesperson talking about “the little people” (a classic provocative statement by a flakcatcher.) They will use a twofold criteria: Does this increase liability? Does this protect the company’s assets?

I am a retired lawyer from La., whose family has been involved with oil cases since Standard Oil was actually called Standard Oil. It seems to me that a great deal of both the effort to seal the well and to protect the coastline has been dictated by laws, not by physics or chemistry.

For instance, every petrochemical state has a long line of cases about ownership of oil and gas which is “spilled” or “lost” by the driller. At least some of BP’s cleanup behavior seems to be an effort to maintain a claim of ownership on the spilled crude. After all, there’s billions of dollars of it floating around, available to the first person on the site with good cleanup equipment.

Similarly, it’s my impression that a great deal of the undersea efforts have been directed, not at capping the well, but at proving that BP is not abandoning the well.

To me, the tragedy of BP’s continued oversight of the whole thing lies in their basic aims; retain ownership of the well, retain ownership of the spilled oil, limit legal liability. They honestly could care less about anything else at this point.

Regarding the cleanup, procurement policies, labor and safety laws (such as the Jones Act), and intergovernmental squabbles over authority are a real damper on any serious effort at cleanup and collection. These are what are determining speed of response, not the will to prevent damage or clean up what has already happened.

BP will not stop the flow of oil from the well until it has a relief well up and running; it will not step up on cleanup (why spend more on what’s already broke?); it will use litigation, and, if necessary, bankruptcy to avoid liability; and, twenty or thirty years from now, it will pay the locals who are still alive a symbolic payment, which will not begin to address their loss.
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PassingThrough on June 18, 2010 – 10:46am Permalink | Subthread | Parent | Parent subthread | Comments top

“I am a retired lawyer from La., whose family has been involved with oil cases since Standard Oil was actually called Standard Oil.”

Thanks for the interesting input, retiredL. I wonder if you can help with a question. Assuming you can’t (or don’t want to) talk about any specific case, in general terms, what would need to be proved to successfully prosecute a corporation with *criminal* negligence in an industrial incident with multiple fatalities? How high would the burden of proof need to be? Could individuals face prosecution? At which level? What would / could the penalties be?

I’m interested because my own field is engineering safety and I see lots of accidents. We’ve a corporate manslaughter act here in the UK but it seems unlikely any individual executive could face charges (as I understand it). Just wondering if it’s the same in the U.S.

Thanks.
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retiredL on June 18, 2010 – 11:31am Permalink | Subthread | Parent | Parent subthread | Comments top

That’s an incredible legal tangle. That sort of prosecution is very rare here in the US.

Since I am assuming that you are speaking of the rig workers killed in the explosion, you run afoul of two really arcane areas of law: admiralty, and limitations of damages under Federal energy legislation. If I were still practicing, I would refer you out at that point, because my insurance wouldn’t cover me taking your case. You’d have to go to a specialist’s specialist.

I could go into a great deal of blather about it, but, as I taught my law students, “when in doubt on an exam, think of what your grannie would do.” Grannie would not prosecute her drug connection, would she? It’s extremely unlikely that the US or any of the states will do so to BP. We need them too much. And any prosecutor from an oil state who tried to prosecute BP could kiss their job goodbye, and then move to the dark side of the moon, to keep their house from being torched, their dog poisoned, and their children beaten. Not by BP, of course, but by all of their fellow oil-state citizens who see their livelihoods, pensions, and investments being threatened.

…

Sorry, but there’s yet another issue you would have to face. Where would you find a jury or judge competent to rule on this matter? Any “blue-ribbon” jury you could call would have to be made up of oil professionals. All judges are primarily political animals, even federal judges (I know, because I have one of those in the family too). If they went after BP, pierced its corporate veil, and held individuals on the board or staff liable, they would be like the judge in “Miracle on 38th Street”, trying to send Santa Claus to an insane asylum.
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PassingThrough on June 18, 2010 – 12:53pm Permalink | Subthread | Parent | Parent subthread | Comments top

retiredL, thanks very much for the analysis. It was very interesting… and very depressing. Perhaps its a self-fulfilling system; it seems from what you say that there are major incidents (we’ve just today had the verdict on the largest explosion in peacetime here in the UK; my understanding is that the companies will face fines) – there are major incidents because the law has neither the teeth nor the expertise to prosecute the responsible individuals and send them to prison for a while. Yet people go to prison for not paying their taxes or television licences.
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[responding to Porker’s comments, not worth posting here]
retiredL on June 18, 2010 – 11:07am Permalink | Subthread | Parent | Parent subthread | Comments top

Your assumption is that BP will do what makes sense. Have they done that thus far?

Corporations, like people, act by habit. BP’s repeated failures and accidents show a corporate culture dominated by lawyers and accountants, not by technicals. In their cost/benefit analysis, they would rather defend a possible huge lawsuit than take small precautions in the present which might add to the bottom line.

Oil recapture is a huge legal issue in the US. It’s a deeply entrenched habit of oil companies, preventing others from harvesting their spillage. If BP were to pretend the oil on the beaches wasn’t theirs, then others could pretend that the oil coming from the damaged wellhead wasn’t theirs, and it would be open season on collecting.

Regarding “hogwash”, I can’t name my old law firm, but I worked with people who wrote the textbooks on oil law and bankruptcy. I’m just telling you what I’ve learned in my experiences as a lawyer. Are you a lawyer?

Their objective may be to kill the blowout, but they have to kill it in a way which does not imply that they are abandoning the well. That legal parameter will determine everything they do.

And, if future litigation is a given, everything– EVERYTHING– BP does will be with limiting liability in mind.

It sounds crazy, but it’s true. Think of the Challenger disaster– the failure of the O rings. What did the supervisor say to the engineer opposing the launch? “It’s time to take off our engineer hats, and put on our manager hats.” That’s BP’s managing mentality as well.
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E L on June 18, 2010 – 12:17pm Permalink | Subthread | Parent | Parent subthread | Comments top

rL: Doesn’t BP also want to sit on the evidence? “Abandoning” the well might open up some unfortunate (for BP) opportunities for others to collect evidence.
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retiredL on June 18, 2010 – 1:42pm Permalink | Subthread | Parent | Parent subthread | Comments top

It seems to me that the evidence BP will want to sit on is is records/communications at corporate headquarters. BP will want to plead an intermediate cause which should (at least partially) relieve them of liability– the most important of which would be that their employees acted without management’s knowledge or consent.

A legal note– most of the time, you catch corporations, not by what they’ve done, but because of the way they tried to hide what they did. Obstruction of justice, perjury, creative bookkeeping, conspiracy, RICO.

BTW, it wouldn’t surprise me to learn that BP’s exploration division is firewalled off in some way from the rest of the company. It’s normal in risky ventures to create a subsidiary to act as a fall guy, if something goes wrong. I don’t know whether they did that here.
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retiredL on June 18, 2010 – 11:55am Permalink | Subthread | Parent | Parent subthread | Comments top

I understand your anger, and I’m sorry for the realities which have occasioned it. But, in truth, we have passed through the looking glass here. These are not everyday people deciding what’s right and what’s wrong. These are lawyers and accountants who owe their corporate positions to their willingness to be ruthless in defending their property and finding maximum profits/minimum loss.

Law is not concerned with “real rights or wrongs” or “best/fairest outcome.” I’m very sorry, but it’s not. It’s concerned with order and process– creating predictable norms of behavior, and then assuring citizens that creating order is done the same for every person coming in contact with the legal system. And, very unfortunately, it’s weighted in favor of those who have the most money.

I’m not well-versed enough in the technical side to determine how much oil has escaped. But don’t get buzzed by all of the astronomical figures; accountants aren’t. Even accepting your figures, who on this site would not consider killing someone for $168 million? And with lawyers, it’s the principle of ownership that matters, not the dollar figure. People regularly get sued for amounts less than court costs.

Again, I have no way of ascertaining whether the amount of oil captured is correct. BP doesn’t have a very good track record on giving good estimates, does it? I would be willing to bet that, in the end, the amount captured turns out to be very low, when compared to the amount of escape. It’s not the actual capture figure that matters, it’s the fact that BP is still behaving as if it’s trying to do something, and not just waiting for the relief well to be drilled.

Regarding what BP has spent, I’m assuming that that figure came from BP. I’m sure that a) there’s no documentation for it and b) it represents some interesting bookkeeping maneuvers. Does it include opportunity costs? Forward billing practices? Estimates of future liability? And who is paying it? BP subsidiaries? Government workers? Is BP paying itself for the relief costs, and does that make up part of the figure?
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[NOTE: shelburn corrects a few technical inaccuracies of retiredL, which is a good thing to do]
shelburn on June 18, 2010 – 1:45pm Permalink | Subthread | Parent | Parent subthread | Comments top

For the most part I agree with your assessment of the legal aspects but BP has no commercial interest in the spilled oil except for their liability associated with it. There is very little value to the oil that has spilled.

10 days ago I did a quick engineering study about the rate of the leak and the growth due to erosion – very rough figures but much more scientifically supportable than the hyperbole being spread by the media.

http://www.theoildrum.com/node/6576/644717

Since then I saw the high res shots of the riser after it was cut and it is clear there is a large stream from the drill pipe which might not have been leaking at all before. So I think the increase in leakage when they cut the riser might have been closer to 50%, not the 20% BP suggested. My new estimate after June 5th is in the range of 30,000 to 45,000 bpd.

By the way, in line with your legal theories, BP never made any flow estimates. All official estimates came from government entities plus a whole lot from instant experts on MSM.

If you take a reasonable flow rate over the life of the leak as it increased from about 2,000 bpd to 35,000 bpd the total leaking from the BOP is probably more than 700,000 bbl and less than 1,600,000 bbl (30 to 70 million gallons).

So for this exercise lets assume 1,200,000 bbl has leaked out the BOP, remembering these numbers may be higher or lower by 40%+.

600,000 bbl (50%) has evaporated or dispersed, could be more but 50% seems reasonable.

125,000 bbl has been burned at sea – this is the USCG’s estimate and could be way off.

100,000 bbl has been recovered by skimmers based on 20% of the USCG reported 21.9 million gallons of oily water.

200,000 bbl has been captured – this is a pretty exact number and can be found on a spreadsheet at http://www.energy.gov/open/oilspilldata.htm

5,000 bbl has been burned on the Q4000.

That leaves about 170,000 bbl unaccounted for – floating around in spills, on the shore, in the marshes, etc.

And before I am attacked about the size of the spills – try to watch some of the aerial shots when they pan away from the large collection of emulsion. It is difficult as the media wants to show the worst of it but there are large areas of open water filled with streaks of oil and emulsion. I would wager that if you did an detailed aerial survey about 70% to 90% of the area reported as slicks actually consists of open water. It is one of the reasons it is so hard to clean up, most skimmers are designed to clean up coherent slicks, the thicker the better.

Back to the value to BP. The amount that is burned and evaporated has become air pollution, distributed over a large volume of atmosphere so its effect is greatly reduced.

The 100,000 bbl recovered by skimmers probably is weathered enough that very little of it can be recovered except by spending more money, in other words it has a negative value. Even very fresh oil that is skimmed has been exposed to salt water so its commercial value is greatly discounted, maybe about $10 to $20 per barrel at best. The oil still floating is likewise worth little to nothing.

The 200,000 bbl that has been recovered is probably worth about $15,000,000. A portion (12.5%? or 16%?) goes to the government as royalty and BP has said that they are going to donate the rest to a wildlife fund for the Gulf Coast. BP is capturing about 15,000 bpd worth about $1,000,000 a day but their costs of the recovery are probably close to $2,000,000 per day for the Discoverer Enterprise, the Q4000 and all the ROVs and support vessels.

Maybe you could find the legal document that sets up the wildlife fund and determine if it is actually above and beyond or if it just offsets cost that BP is liable for anyway.
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retiredL on June 18, 2010 – 1:29pm Permalink | Subthread | Parent | Parent subthread | Comments top

Well said and informative. I appreciate that the spilled oil has no economic value– for a modern corporation with precise methods of computing such a value. However, in all of the oil recovery cases I have read, the oil had no economic value. People were taking it for their own use, whatever that might be. Think of the in third world countries who collect spillage for fuel. It’s the ownership of the thing that matters, more than the value.

As for issues of well abandonment and oil ownership, the basic principles were created during the on-land era, to be sure. But, once created, basic law principles are very difficult to change. Law, both common and statutory, is based on precedent; and, unless compelling evidence can be offered to the contrary, precedent rules.

Therefore, I promise, my last words on this matter. BP’s only concerns are protecting its property and limiting liability. Those concerns will be defined by laws and actuarial tables, not by common sense; so, they will pay attention to technical solutions only as far as those solutions accomplish those goals. Our society is far too dependent on Big Oil to risk damaging or driving an oil corporation out of existence. As with the Exxon Valdez, any punishment for BP’s behavior will gradually be reduced over to time to a point where BP still feels welcome in American waters.

Thanks to everyone on this site. I have always found it decent, well-informed, and intelligent reading. Please continue the good work.

So there’s quite a bit of reality check.

And let’s not forget that in the rest of the non-first world, drilling accidents and spills are constant and normal. So all this fuss we are displaying here is just because it’s in our backyard. Nigeria, Ecuador, come to mind.

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