BP Violations Called ‘Red Flags’

     NEW ORLEANS (CN) – The explosion of BP’s Deepwater Horizon oil rig was preceded by a string of near-cataclysmic incidents in BP operations that should have been “red flags” announcing the likelihood of a major explosion, a shareholder says. Yet BP’s Board of Directors ignored crucial safety issues, cut corners, violated U.S. law and spent millions lobbying Congress to fight regulations for the sake of making a buck, according to the federal derivative complaint.

     Katherine Firpo says the company was violating U.S. when the Deepwater Horizon exploded while drilling at 22,000 feet – 2,000 feet deeper than allowed by its federal permit. Firpo says that alone shows that the BP Board of Directors cannot be trusted and has no regard for safety or regulations.
     Firpo claims that on April 27, the day the U.S. Coast Guard worked with BP engineers to guide remote-controlled submarines nearly 1 mile deep in a futile effort to close the shut-off valve on the Deepwater Horizon, BP officers bragged to investors that the company’s most recent quarterly earnings had beaten analysts’ expectations by a large margin.
     Twenty days have passed since the explosion killed 11 workers and injured 17, and hundreds of thousands of barrels of oil a day are still gushing into the Gulf of Mexico, killing wildlife and killing the livelihood of fishermen.
     BP, which owns the lease to the well it was drilling, though the rig itself belonged to Transocean, has admitted liability for the April 20 explosion and subsequent devastation.
     In the year before the Deepwater Horizon exploded, Firpo says, BP had “repeatedly and aggressively” cut costs of drilling. A company reorganization stripped 5,000 jobs from BP’s payroll, saving BP more than $4 billion in operating costs, and BP tried to trim costs still further by lobbying to keep safety regulations at a minimum, according to the complaint.
     Firpo says there had been numerous spills and fires on the Deepwater Horizon rig, which had been issued citations for “acknowledged pollution source” by the U.S. Coast Guard 18 times in the past 11 years. During one incident in 2008, 77 people were evacuated from the rig after it listed and began to sink when a section of pipe was accidentally removed from its ballast system, the complaint states.
     Firpo says that even after a 2006 shareholder derivative complaint, filed as a last resort to require BP to address safety concerns, was settled out of court, BP’s Board of Directors continued to ignore safety issues in deepwater operations, “making purely cosmetic changes at the corporate level while ignoring the substance of the safety violations and the threat they posed to the entirety of the Gulf, commercial and private property, and the company’s own survival as a going concern.”
     Firpo says that when CEO Anthony B. Hayward took office in 2007, he promised to change BP’s culture with a renewed commitment to safety, but the record shows this “promise to have been an empty one, as Hayward and the other BP defendants have led the company of a furious expansion of its underwater drilling operations across the globe, coupled with severe cost-cutting measures heedless of safety and environmental concerns,” and have sunk millions of dollars into lobbying to remove restrictions on deepwater drilling.
     Firpo claims that in 2009, BP spent $16 million lobbying the federal government on issues including removal of restrictions on drilling on the continental shelf, despite its history of spills and explosions, and the high risks involved in such drilling.
     In 2009, when the U.S. Minerals Management Service proposed a rule to require companies to have their safety and environmental management programs audited once every three years, BP’s Board of Directors lodged a formal objection on behalf of BP, Firpos says.
     The Deepwater Horizon disaster could have been prevented by simple respect for safety regulations and two relatively inexpensive safety devices that BP chose not to install before drilling, says Firpo. She claims that the back-up safety equipment would have stopped the leak even without the blowout preventer that failed.
     But Firpo says BP “consciously elected not to install an acoustically activated remote-control shut-off valve, costing only $500,000, to the well.”
     Such acoustic switches “are mandated in countries like Brazil and Norway, and are routinely employed by companies such as Royal Dutch Shell and Total SA, but have not been legally required in the U.S. due to the lobbying efforts of the BP defendants themselves as well as their counterparts at other companies,” according to the complaint.
     “Second, the BP defendants chose not to install a deep-water valve that would have been placed about 200 feet under the sea floor. Much like blowout preventers, devices that are meant to seal leaks, this valve could have served as a cutoff of last resort in explosions.”
     Although BP’s liability under federal law is capped at $75 million under the Oil Pollution Act of 1990, legislation is moving through Congress that would raise the liability cap to $10 billion and make the change retroactive and applicable to BP and the Deepwater Horizon catastrophe, Firpos says.
     Even before that legislative action began, Hayward announced that BP would pay in more than the liability cap imposed by the act to remediate the problem.
     BP is also liable for damages under the Louisiana Oil Spill and Prevention Response Act, which holds the party responsible for an oil spill liable for up to $350 million in damages, Firpo says, plus costs and damages for the cleanup, regardless of any defense it may assert.
     Firpo seeks damages on behalf of BP and it shareholders, alleging breach of fiduciary duty and corporate waste.
     Firpo is represented by Lewis Kahn of New Orleans.

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