NEW ORLEANS (CN) – Though actor Kevin Costner was trying to sell BP a centrifuge that separates oil and water to tackle the Gulf oil spill in 2010, a former partner said other investors likely wanted out because of a “scary” test run of the machine.
Actor Stephen Baldwin and another partner, Spyridon Contogouris, sold their shares in Ocean Therapy Solutions for $1.9 million, just days before BP advanced the company $18 million on a $52 million order for 52 centrifuges.
Baldwin and Contogouris, who say they were unaware of any agreement with BP when they sold their shares, seek more than $21 million in damages from Costner, Westpac Resources and Patrick Smith.
The trial hinges in part on when Smith and Costner entered a solid agreement with BP, and whether they reached that agreement knowing that Contogouris and Baldwin planned to sell their shares.
Smith testified for eight hours Tuesday, after two hours of testimony Monday as the first witness in the trial.
He said Contogouris probably wanted out of Ocean Therapy Solutions after seeing oily water with the consistency of peanut butter get stuck in Costner’s machine.
Smith claims he and Costner knew of the $18 million advance from BP on a $52 million order for 32 centrifuges, but that the money was just a drop of what OTS would need to operate, and did not represent the hope of profit.
“It was pure gamble, pure risk,” Smith told plaintiffs’ attorney James Cobb during cross-examination Tuesday.
“It was expensive. What we were doing in the Gulf of Mexico was very expensive,” Smith testified. To make the centrifuge business work, OTS had to hire contractors, engineers, production staff, attorneys and other expensive support.
“It was like wartime down there, and we were trying to do something that was environmentally sound that would help the Gulf.”
In a June 8 text from Smith to Ted Skokos, an investor who ultimately bought out Contogouris’ shares in OTS, Smith wrote: “We had an amazing meeting with BP. We r on line. I have a buyout agreement from the partner we want out being drafted today.”
On June 10, Metairie, La., attorney Daniel Grigsby drafted the contract between BP and OTS for 32 centrifuges.
Smith testified that the order from BP for centrifuges was still “conditional,” as of June 10.
The next day, June 11, Contogouris effectively sold his shares in OTS in a document Grigsby drafted.
Smith said the buyout document was drafted soon after the failed test run on the machine.
Just days after Contogouris and Baldwin sold their shares, BP advanced the company $18 million on a $52 million order for 52 centrifuges.
Contogouris would have known at the time he left the company that BP planned to advance the company $18 million, Smith testified.
He added that the $18 million advance on $51 million from BP “represented no clear profit,” as “all the abilities in the oil spill depended on the machine’s subjective ability to pass the test.”
The signed contract between OTS and BP contained an “exit clause” to take effect if the machine could not pass the separation test, Smith told the court.
Under questioning Tuesday afternoon from his own attorney, Roy Cheatwood, Smith said that the water BP gave OTS to test the machine was like peanut butter because it “was so gummy with dispersants,” and that afterward Contogouris “was afraid to go forward” with his investment in OTS.
Smith said the “peanut butter” test run had scared Contogouris – and worried him too. He said he suspected that BP was trying to “submarine” the company.
BP had Smith and the others bring a centrifuge to Fourchon, the coastline nearest the Deepwater Horizon blowout and the Macondo well, still gushing at the time.
“Standing out in Fourchon, we were worried they gave us material that was so gummy that they were doing it on purpose,” Smith said.
For a decade before the oil spill, Costner tried to interest the “whole oil industry” in his oil-and-water separating machine and had been rejected, ostensibly because oil spills were no longer a problem, Smith said. Because of that, they thought BP might have been out to prove their machine was a failure.
Smith said he worried the company was being “submarined” by BP again on a later date at Fourchon, when they had to “clear out” because of the presence of a toxic gas.
Because BP was OTS’ only hope for making a profit, Smith said, the company had to try to work with the oil giant. Still, he said, he could see why Contogouris would have been nervous to go forward.
Smith said Contogouris initially wanted to enter into a “shotgun” buyout, in which either the partner buys out the company or the company buys out the partner.
But after the test run, Contogouris got nervous and just wanted to get rid of his shares, Smith said.
Costner’s centrifuge is a 5-ton machine designed to separate water from oil, spit out clean water and save the oil, Smith said. They wanted to put it on ships.
John Houghtaling, an attorney with an ownership interest in OTS, told CNN in June 2010 that the machine can collect 210 gallons of oil a day.
Smith said he remembers Costner saying that 20 centrifuges during the 1989 Exxon Valdez spill off the coast of Alaska could have cleaned up the 11 million gallons of oil spilled in one week.
Smith spoke about an irate email Contogouris sent him after the trial run. “I am disgusted with your transparent cram down,” the letter started. It added: “Nor do I have any confidence that you and Kevin [Costner] would exercise sufficient fiscal restraint such that a non-controlling shareholder would ever see any profit …”
Later in the email, Contogouris wrote: “You and Kevin [Costner] seem to want to shoot first, then ask … it is the same type of behavior that I think is turning off BP … You should not be talking to BP.”
Costner and his co-defendants seek damages in counterclaims.
Baldwin and Costner are expected to testify at trial. At the height of the 87-day oil spill, BP ordered 32 of the centrifuges. It sent a few of them to the Gulf in June 2010.
The jury trial, overseen by U.S. District Judge Martin Feldman, is expected to last two weeks. Testimony continues today.