The EPA bans BP from new Fed contracts. For how long?

 
Last week the US Environmental Protection Agency brought the hammer down on BP. A few days after the company had reached a criminal plea deal with the US government (including a record fine of $4.5 billion) over the 2010 Deepwater Horizon accident, the EPA suspended BP from obtaining new US government contracts, citing its “lack of business integrity” regarding the disaster that killed 11 men and caused the largest-ever offshore oil spill in the US.

The US ban does not end the company’s existing contracts. Although BP spokespeople are hoping for a swift resolution of the situation, the ban on BP bidding for new federal contracts could take some time to resolve. US officials have poured cold water on a BP spokeperson’s suggestions that the restrictions could soon be ended.

While the ban is temporary, it could be months before BP is allowed to obtain new contracts, including oil leases in the Gulf of Mexico, because an administrative agreement is just one of a number of steps BP and the US government must work out.

The EPA has given no further details about the duration of the suspension, and the potential costs to BP are not immediately clear. A warning shot across the bow (which will see the ban lifted in a few weeks) is one thing, but a prolonged ban would be seen as additional financial punishment. It could mean serious economic consequences for BP and threaten its position as a top US offshore oil and gas producer and as the US military’s leading fuel supplier.

In the tough world of oil and gas competition, if BP is banned for accessing those lucrative government contracts, some other major oil company (Shell, Exxon Mobil, or Chevron, for instance) could step right in to fill the void. BP has at least 11 military deals (valued collectively at more than $2 billion) set to expire in the next two years.

The tough financial situation generated by BP’s 2010 oil disaster could become uglier yet.

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Picture by Florida Fish and Wildlife used under a Creative Commons license.

Stuart Hampton

British editorial veteran Stuart Hampton has been covering oil and gas companies for Hoover's since the Neogene-Quaternary period. Well, actually, since the early 1990s. For the best overview of the oil industry and its history he recommends Daniel Yergin's "The Prize." You can also follow Stuart on Twitter.

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