BP Suspension: What’s Behind Door Number Two?

Now that oil company BP has been suspended from federal contracting, who is going to step into the breach and become the Pentagon’s top fuel supplier? More importantly, how much more ethical and responsible will BP’s replacement be?

According to federal contracting law, BP’s contracts and subcontracts in existence at the time the suspension was imposed last week can continue, but as Bloomberg reported, as much as $2.43 billion in BP contracts with the military will expire over the next two years. Assuming the government does not waive the suspension, some of those contracts will be awarded to other oil companies.

In that event, there are four likely candidates:

Valero Energy: According to POGO’s Federal Contractor Misconduct Database, Valero has 28 instances of misconduct since 1995 for which it has paid $283.5 million in fines, penalties, and settlements. Twenty-three of those instances involve environmental violations, including a $237.9 million settlement in 2007 to resolve Clean Air Act violations at refineries in Texas, Ohio, and Tennessee.

Chevron: Chevron has 37 instances and $537 million in penalties. The vast majority of its instances are environmental violations, including an agreement in 2003 to pay more than $281 million to settle federal pollution violations at refineries in four states. That payout could soon be dwarfed by the more than $18 billion a court in Ecuador ordered the company to pay in the so-called “Rainforest Chernobyl” case that seeks to hold the company accountable for the dumping of billions of gallons of toxic wastewater into the Amazon rainforest from the 1960s to the 1990s. (The case is currently on appeal in the United States.) Chevron’s instances also include more than $140 million in settlements with the Department of the Interior over alleged underpayments of oil and natural gas royalties on federal leases and a $30 million settlement over claims that it paid kickbacks to the Iraqi government in the infamous Oil-for-Food program.

Royal Dutch Shell: Shell has 34 instances and $1.3 billion in penalties. Only 14 are environmental instances. The rest are a grab-bag, including underpayment of royalties, securities fraud, foreign bribery, and human rights violations.

Exxon Mobil: Exxon has 59 instances and $2.4 billion in penalties. Environmental violations account for 38 of the instances and almost half of the penalties. Exxon is perhaps best known for the 1989 Exxon Valdez oil spill in Alaska, which led to a decades-long legal battle over the company’s civil liability. Exxon has also been involved in legal scrapes over oil and gas leases (federal and state) and price fixing. Almost half of Exxon’s penalty total comes from a breach of contract class-action lawsuit filed by Exxon dealers who alleged Exxon had overcharged for the wholesale price of gasoline for more than 20 years. The lawsuit settled in 2005 for nearly $1.1 billion.

So, despite having at least four possible candidates from which to choose, the government will end up with a fuel supplier with a responsibility history not much better than BP’s. However, we should at least be thankful that there is competition in this area and that the government has alternatives. We can only hope that the example of BP’s suspension will keep these companies in line.