BP lost US contracts worth $896 mil due to Macondo-related
suspension
Washington (Platts)--1Feb2013/337 pm EST/2037 GMT
BP has lost $896 million worth of business with the US military as a
consequence of its guilty plea to criminal charges stemming from the
2010 Macondo well blowout and oil spill in the Gulf of Mexico, according
to Defense Logistics Agency data.
Two contracts with the DLA expired at a time when BP was under
suspension from being awarded any new business with the US because of
its conviction on manslaughter and other charges, including violating
the Clean Water Act.
The two lost contracts are the first tangible consequences of the
suspension that was triggered by BP's guilty plea, which was accepted by
a federal court judge on January 29. BP has agreed to pay a $4 billion
criminal fine and serve five year's probation, as well as pay a separate
$525,000 fine for lying to investors and Congress about the flow rate of
oil from its Macondo well.
The suspension was imposed on November 28 by the Environmental
Protection Agency on behalf of the entire US government. BP has said it
is working with the EPA to reach an agreement that would lift the
suspension, but recently acknowledged that it "may take some time to
resolve issues relating to such an agreement."
At stake for BP is millions of dollars of fuel sales to the US, plus its
ability to secure leases for new offshore oil and gas exploration. The
next US offshore lease sale is scheduled for March 20 in the Central
Gulf of Mexico, an area where BP has been very active in the past. If
its suspension is not lifted before then, it would be ineligible to be
awarded any leases.
In addition to its extensive offshore holdings, BP is a major supplier
of jet fuel, gasoline, diesel and other petroleum products for the US
military. In the 2011 fiscal year, the DLA awarded 22 contracts to BP or
its affiliates worth about $1.4 billion. That represents 10.35% of DLA's
energy purchases for 2011, the agency said.
'STANDARD PRACTICE'
The first of the two BP contracts lost was an annual deal to provide
various fuels to military and Defense Department installations in the
western US as part of a larger fuel procurement arrangement. It was
worth $791 million and was performed by BP's affiliate ARCO. The
ordering period for the contract expired on December 31, 2012, with a
30-day carryover period for deliveries.
The DLA, which procures fuel for military and other Defense
Department-related uses, extended the contract until May 31 of this
year. But ARCO was ineligible to participate because of BP's suspension.
Its share of the contract is being performed by Chevron, a DLA
spokeswoman said.
A second contract, awarded to BP Singapore in 2011, was for the delivery
of F-76 diesel fuel and was worth $105 million. It also expired on
December 31, with a 30-day carryover period for deliveries.
That contract was let out to bid on May 7, 2012, and was awarded in
December to Refinery Associates of Texas and S-Oil Corp., according to
the DLA. BP was ineligible for the award. A DLA spokeswoman could not
immediately say whether BP bid on the contract.
BP did not immediately respond to a request for comment.
When the EPA issued its suspension last November, the agency noted that
the action was "standard practice when a responsibility question is
raised by action in a criminal case."
While the suspension process is discretionary, BP's criminal conviction
triggered a mandatory statutory disqualification because it included a
violation of the Clean Water Act. Under this provision, BP is
disqualified from receiving any government contracts, leases, loans or
other benefits until it can persuade the EPA that the condition that
gave rise to the disqualification has been corrected.
Disqualification applies both to the company and the the specific
facility where the Clean Water Act violation took place. In this case,
the EPA has designated BP's Houston corporate headquarters as the
"facility."
"Discussions between EPA and BP continue in an effort to address BP's
existing present responsibility issues, and resolve the November 28,
2012 suspension action and today's disqualification," the EPA said in a
statement on Tuesday.
--Gary Gentile,
gary_gentile@platts.com
--Edited by Richard Rubin,
richard_rubin@platts.com
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