Spill liability splits Senate; Salazar, Napolitano seek BP position

US senators continued to argue over the need to raise the $75 million liability limit under the 1990 federal oil pollution act (OPA) as two key members of US President Barack Obama’s cabinet sought assurance from BP PLC’s chief executive officer that the company doesn’t plan to rely on it.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, May 17 -- US senators continued to argue over the need to raise the $75 million liability limit under the 1990 federal oil pollution act (OPA) as two key members of US President Barack Obama’s cabinet sought assurance from BP PLC’s chief executive officer that the company doesn’t plan to rely on it.

Senate leaders in both parties agreed that parties responsible for the Apr. 20 Deepwater Horizon semisubmersible rig accident and subsequent oil spill into the Gulf of Mexico should pay for the cleanup. “First, you have to make sure BP pays for the whole thing,” Charles H. Schumer (D-NY), the Senate Democratic Conference’s vice-chairman, said on May 16 as he appeared on NBC News’s “Meet the Press.”

“The president has spent a whole lot of time pointing the finger at BP, and you should point the finger at BP and the other companies involved in it,” Minority Leader Mitch McConnell (R-Ky.) observed later in the same broadcast.

But the two senators disagreed over whether the spill liability limit under OPA should be increased to $10 billion, as proposed in legislation sponsored by US Sen. Robert Menendez (D-NJ) in the Senate and Rep. Rush Holt (D-NJ) in the House. “There's an effort in Congress to remove that cap, and I think it'll pass,” said Schumer, while McConnell said: “The danger in that, of course, is that if you raise the cap too high, there will be no competition in the gulf and you'll leave all the business to the big guys like BP.”

Lisa Murkowski (R-Alas.), the Energy and Natural Resources Committee’s ranking minority member, and other Senate Republicans blocked a unanimous consent motion by Menendez and the bill’s nine Democratic cosponsors on May 13 to debate the measure immediately. Meanwhile, two Gulf Coast members of the GOP, David Vitter (La.) and Jeff Sessions (Ala.), introduced their own bill to raise the spill liability limit to an amount equal to the responsible party’s profits over the previous four quarters or double the current limit, whichever is greater.

‘Much more effective’
“As it stands, the cap on damages is too low, which leaves taxpayers exposed to the risk of paying the steep costs of cleaning up oil spills,” Vitter said. “Making a company at fault pay their last four quarters of profits is a much more effective way to ensure that energy companies actually pay for their mistakes without chasing many of them out of business. Under our bill, the bigger companies would be liable for more than the $10 billion cap others propose.” He said that the measure also would require much greater reserve requirements for boom capable of withstanding waves up to 6 ft, and require a full report by Sept. 1 from all agencies involved in the cleanup in the gulf that’s under way.

Questions about whether BP plans to even use the money from the spill liability fund established under OPA led US Interior Secretary Ken Salazar and Department of Homeland Security Secretary Janet Napolitano to write BP Chief Executive Tony Hayward a May 14 letter seeking clarification.

They cited statements by Hayward, BP America Inc. Chairman and Pres. LaMar McKay, and BP’s US General Counsel John E. Lynch Jr. indicating that the multinational oil company “will not in any way seek to rely on the potential $75 million liability cap to refuse to provide compensation to any individuals or others harmed by the oil spill, even if more than $75 million is required to provide full compensation to all claimants, and BP will not seek reimbursement from the American taxpayers, the US government, or the Oil Spill Liability Trust Fund in any amount.

“The public has a right to a clear understanding of BP’s commitment to redress all of the damage that has occurred or that will occur in the future as a result of the oil spill,” Salazar and Napolitano continued. “Therefore, in the event that our understanding is inaccurate, we request immediate public clarification of BP’s true intentions.”

Menendez and two of his bill’s main cosponsors, US Sens. Frank R. Lautenberg (D-NJ) and Bill Nelson (D-Fla.), blasted Senate Republicans on May 13 for blocking their unanimous consent motion to debate the matter promptly on the floor. “Tony Hayward acknowledged in a meeting I had with him last week that the environmental and economic damages will exceed the current $75 million cap on liability for drilling accidents,” said Nelson. “That’s why we needed to raise the cap to $10 billion. And I’m not sure $10 billion is going to be enough on the cap. And let’s remember the fact that BP reported a profit of $5.5 billion in just the last 3 months.”

‘Biggest of Big Oil’
But Murkowski, as she explained her opposition, said that lawmakers needed to consider possible unintended consequences of simply picking a new limit such as $10 billion. “This has been named the Big Oil Liability Bailout Prevention Act, but I think there’s some irony here. What this would do is give all of America’s offshore oil resources to the biggest of Big Oil,” she maintained.

Independent producers recover two thirds of the gas and one third of the oil currently coming from the US Outer Continental Shelf, she continued. “If we move forward with raising the liability cap to $10 billion, the only companies that will be able to self-insure against this level of liability will be the national oil companies and the super-majors,” Murkowski said. “We all know who they are. They’re Saudi Aramco, Exxon, the Chinese national oil company and, of course, BP.”

McConnell echoed her concern on May 16. “The danger is if you raise the cap too high, there will be no competition in the gulf and you’ll leave all the business to guys like BP,” he said on “Meet the Press.” “What BP has said they need to be held to, which is they're going to pay for this. They ought to pay for it, and they will pay for it. But the danger of taking the cap too high is that you end up with only massive, very large oil producers able to meet that cap and produce in the gulf.”

The Senate’s minority leader also called for a closer look at federal offshore oil and gas regulation. “Was the [US] Minerals Management Service a part of this administration that approved this site? It also approved this spill response plan,” he said. “What kind of oversight did the administration provide during the course of the drilling? There are plenty of questions that need to be answered, and there will be adequate time for that.”

Schumer said Obama admitted that the federal government had not been “a good enough watchdog” in that respect. “Obviously, something failed dramatically here. There ought to be a fail-safe mechanism and then there ought to be a backup fail-safe mechanism because if you, if you don't have it, look at the damage. And it can last for years and years and years,” he suggested.

Contact Nick Snow at nicks@pennwell.com.

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