green and sustainable business

Penalties, fracking alter the playing field for energy companies

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deepwater horizonGuest post by Daphne Holmes. She is a writer for arrestrecords.com; reach her at daphneholmes9@gmail.com.

The notorious BP Deepwater Horizon oil disaster in 2010, considered to be the largest accidental marine oil spill in the history of the petroleum industry, was the “shock heard ’round the world,” and it is still reverberating. The cause of eleven deaths and a loss of many billions of dollars to the Gulf Coast economy – it has impacted offshore drilling, tourism, and fishing – the BP spill resulted in numerous civil lawsuits and settlements as well as criminal charges. BP is fighting some of these charges and the terms of some settlements, even as it continues to present itself as an environmentally responsible corporate citizen.

Meanwhile, fracking is causing a furor because of concerns about environmental impacts, including groundwater pollution and an alarming increase in earthquake activity in some areas. Activists around the world are working to stop fracking, and activist groups such as Greenpeace have planned legal challenges to fracking in England. Fracking has been challenged in the U.S. as well, with the main battles being between environmentalists and proponents of economic growth. A web site called Fracking Insider keeps track of legal battles and regulatory developments in the fracking industry.

Are the big energy companies in trouble? Not really.For the energy companies it’s just business as usual. After all, a few million dollars in fines, or even a couple of billion, is just pocket change for the largest companies. And disasters notwithstanding, big oil companies continue to rake in eye-popping profits even when economic growth in other sectors remains lackluster – not to mention that they continue to get huge tax breaks even as they report record-breaking quarterly profits.

BP is at the top of the list of profitable energy companies. And despite its major, multi-media PR efforts and assurances that it is working hard to clean up its mess and do right by the victims, Reuters UK reported in January 2014 that the company has issued numerous challenges to some of the terms in the multibillion-dollar settlement deal it signed in 2012. Meanwhile, recent reports indicate that four years after the disaster, BP appears to be recovering at a rate considerably faster than the environment.

And fracking? Well, for starters, The Guardian (UK) reported in February 2014 that former oil executive John Manzoni had been appointed to lead the government’s Major Projects Authority. Manzoni has been criticized for his role in the BP refinery explosion in Texas City, Texas in 2005, and his last company was fined for over 50 health and safety violations connected with fracking.

From a larger perspective, despite serious concerns about its impact to the environment, fracking has provided a boon to the economies of both the UK and the US. It appears that fracking isn’t going away any time soon. Early in 2014 the UK announced a new offshore fracking initiative; the Staffordshire-based Cuadrilla Resources was granted licenses to start fracking off the coast of Lancashire. This might possibly placate environmentalists concerned with pollution of water supplies, as well as bypassing the legal issues with local communities and landowners. As for the potential impact on our already imperiled oceans, that’s an issue that has yet to be comprehensively addressed.

In the US, although fracking has met with numerous legal challenges, it has adamant and powerful proponents who contend that fracking is helping to turn the U.S. economy around by creating job growth, improved trade balance (by virtue of decreasing U.S. dependence on foreign oil), and new investment opportunities.

Yet the big energy companies aren’t getting off scot-free. A U.S. appeals court has ruled that as the owners of the Macondo well, whose blowout caused the Deepwater Horizin spill, both BP Plc and Anadarko Corporation must face penalties under the Clean Water Act. BP was the operator of the well with a 65% stake, and Anadarko held a 25% non-operating stake in the project. The appeals court’s ruling could ultimately mean billions of dollars in potential liabilities for both firms. While Anadarko’s exposure may not be as great, BP faces a potential liability from the Clean Water Act of up to $17.4 billion. It all depends upon how the court rules on several factors in the ongoing lawsuit. First, the court must determine whether BP was grossly negligent. (If a company is found to be grossly negligent, the fines can go up to $4,300 per barrel of oil spilled.) Another factor will be the court’s assessment of the amount of oil that was spilled during the 87 days it took BP to cap the leaking well. And in determining the amount of the per-barrel fines, the court must also assess eight penalty factors, including the degree of fault and attempts made by the company to fix the damage. The court isn’t scheduled to hear testimony on these eight penalty factors until July of 2015, however.

Meanwhile, one of the latest challenges to fracking activities in the United States comes out of Colorado. As reported by ecowatch.com, the Colorado Oil and Gas Conservation Commission (COOGC) directed High Sierra Water Services to stop disposing wastewater into a Weld County injection well. The order was prompted by a 2.6 magnitude earthquake striking the area on June 23, 2014, about five miles away from Greeley, according to the Colorado Independent. This was the second earthquake in just one month in an area that normally does not experience such seismic activity. High Sierra agreed to a 20-day halt, with the understanding that the COOGC might extend the moratorium if the investigation deems it necessary. It’s not much at this point, but it is an encouraging sign that some companies involved in fracking activities respond to pressure. And that’s a good thing, because fracking has been linked to unusual seismic activity, including earthquakes, in other parts of the U.S. as well.

And the courts are not unsympathetic to citizens impacted by fracking activity. In April 2014 a Dallas, Texas jury awarded a $3 million dollar award to Bob and Lisa Parr, who sued Barnett shale fracking company Aruba Petroleum Inc. for intentionally causing a nuisance on the Parrs’ property. The Parrs alleged that Aruba’s activities impacted their health and ruined their drinking water. Aruba, of course, plans to appeal.

“Fracktivism” may not be as well organized in the U.S. as it is in the UK – here is just one of numerous watchdog groups who keep tabs on fracking activities in the U.K. – but it is a growing movement.

It’s part of a larger trend of increased public awareness and outrage over the devastation created by our continued dependence on fossil-based energy sources. At this point, though, it’s impossible to know if all of this outrage will ultimately result in the big energy companies markedly changing their business operations before they generate a massive ecological disaster from which none of us will recover. Also, whether public indignation will create waves of increasingly violent protests or a peaceful solution is anyone’s guess.

It’s possible that we have not seen the extent of BP’s and other energy companies’ penalties. While Big Oil still rules the world, public opinion does matter, and at some point the energy companies –large and small – will have to do more than pay lip service to consumer concerns. Right?

Image: Deepwater Horizon Fire by EPI2oh via Flickr


Written by William DiBenedetto

3 July, 2014 at 4:00 am

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