BP Avoids Lawsuits Over Oil Drilling Ban That Followed Gulf Spill

BP Plc won’t have to face lawsuits by energy and oilfield service companies over losses they blamed on the U.S. offshore drilling ban imposed after the 2010 Gulf of Mexico oil spill.

The court ruling eliminates one of the largest remaining categories of claims faced by London-based BP, which has already paid more than $55.5 billion over the spill. A lawsuit in Houston federal court in which U.S. investors are seeking $2.5 billion in damages remains BP’s last significant legal risk. That case is set for trial in July.

BP had denied liability for potentially billions of dollars in claims by companies that had to shut drilling operations, sideline work crews and stall supply chains for months after the Obama administration halted deep-water drilling and slowed permits for new wells after the largest offshore spill in U.S. history.

BP argued federal law required such claims to be limited to economic losses that “resulted from” the spill itself, not from the action of a third party such as the federal government. U.S. District Judge Carl Barbier in New Orleans agreed, citing the Oil Pollution Act passed in the wake of the 1989 Exxon Valdez spill.

“There is nothing to suggest that Congress intended the OPA to go so far as to hold a discharger liable for the financial consequences of subsequent government actions aimed at preventing similar tragedies in the future and which broadly affect an entire industry,” Barbier said in a 17-page ruling Thursday.

Barbier said his logic was supported by the fact the U.S. Coast Guard, which administers the federal fund to compensate victims of oil spills, has been denying all BP spill claims that are “a direct result of the moratorium, not a result of an oil discharge.”

Geoff Morrell, BP’s spokesman, declined to comment on the ruling. Steve Herman, a lead lawyer for the plaintiffs, didn’t immediately respond to phone and e-mail messages seeking comment on it.

The moratorium claims were among thousands of lawsuits filed against BP after its Macondo well blew out in April 2010, sinking the Deepwater Horizon drilling rig and spewing crude into the Gulf for almost three months.

Those cases were left out of the global settlement of property and economic-loss claims that BP reached with most private parties in 2012. The cost of that accord has risen to $12.4 billion, the company said in a Feb. 2 regulatory filing. It said the cost would likely be “significantly higher” because many claims still aren’t processed or paid.

Barbier’s decision averts a planned test trial over several of the moratorium suits, including one by the successor to Seahawk Drilling. Seahawk, which alleged losses of $174.8 million, claimed the business was “essentially destroyed” and forced into bankruptcy by the drilling ban.

If the test cases prevailed, more would have gone forward, including claims from firms such as Marathon Oil Co., which sought $47 million for lost offshore production, and Vantage Drilling Co., which wanted $265 million for increased financing costs tied to projects delayed by the moratorium, according to court filings. The largest of the moratorium claims was that by ATP Oil & Gas Corp., which blamed its billion-dollar 2012 bankruptcy on the ban.

Moratorium claims were filed not only by companies that owned and built the rigs and offshore production facilities, but also by those that provided boats and helicopters to ferry crewmen and supplies, or marshaled equipment and service providers to keep the rigs humming far from shore. Federal regulators estimated as many as 25,000 regional jobs were affected by the drilling ban.

The companies said the government shutdown was a foreseeable consequence of BP’s risky behavior in drilling its Macondo well. BP’s conduct was “a substantial cause” of their losses, their lawyers said in a January filing urging Barbier to let the claims go to trial.

Barbier rejected the argument, finding the Oil Pollution Act didn’t allow BP to be held responsible for moratorium claims. “Plaintiffs’ losses did not result from the discharge or substantial threat of discharge of oil from the Macondo Well; they resulted from the perceived threat (whether substantial or not) of discharge from other wells,” Barbier said.

The case is In Re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on April 20, 2010, 10-md-02179, U.S. District Court, Eastern District of Louisiana (New Orleans).