BP Suspension: What’s Behind Door Number Two?

December 5, 2012

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.

Topics: Contract Oversight

Related Content: Competition in Federal Contracting, Contractor Accountability, Energy & Environment, Federal Contractor Misconduct

Authors: Neil Gordon

Submitted by Skyhawk maintainer at: December 8, 2012

Probably naive as hell, but instead of going with the monster corporations, why can't numerous local refineries be chosen to support particular regions?

Submitted by neilzp at: December 8, 2012

One of your best and most detailed issues. Much great detail at a glance.

Submitted by Jack Lohman at: December 8, 2012

Don't even think of it. Cash bribes will have BP back in the limelight soon. Folks, know that it all began in 1976 when the Supreme Court ruled that money is equal to speech. Our government and economy has been all downhill from there. Money (bribes) flowed to politicians easily and created this nation's #1 problem... political corruption. Let's ban together and stop it, before a bloody revolution or military takeover does. http://angrycentervoters.wordpress.com/

Submitted by lindablue at: December 7, 2012

Shameful ways to run their their business and makes crime a private citizen committs look like childs play. Need to define new criminal behavior standards where someone in the corporate setting actual does jail time for criminal corporate behavior.

Submitted by Stacey Howard at: December 7, 2012

I wish these lists were posted with every article against government regulation, and with every claim that "the market regulates itself, and government regulation is what keeps companies from operating effectively".

Submitted by OceanLibrarian at: December 7, 2012

None of the above should be exclusive contractors for the reasons given in article. I would focus on companies like Shell as a top candidate, working in deep water that appear to take the challenge (Like South China Sea) to include optimizing solutions to technical obstacles; Netherlands has the resource of cladded materials (in vacuum fusion) which withstand the most extreme environments and this technology was tested here in the U.S. at DOE labs. If they are using this fabrication process, their components would be superior for sea applications which affects stability. In the past, the MMS has provided rewards for oil corporations which confuses. That should be dependent on another factor, i.e., diversification of investment in alternate energy research and support as well as sea safety. MMS has their own oceanographers and in my experience, awarding contracts with no access to oil company R&D efforts paid for by the U.S. in this field, to be evaluated by the MMS staff, is a practice that should be dicontinued if it has not been changed. Safety is not a proprietary issue only for the oil company that we pay. Data used for establishing operations comes from our bouys and our satellites and duplicate research must be farmed out to other agencies or companies which is another cost of doing business with oil companies. Drilling is not a right and no company should be able to buy up options and not drill without a complete review by independents. We also pay a price for importing oil and not having safe ports for processing. Energy companies have to get on board with new technology for climate remediation. Oil is not a long range answer and we need new carrots for the stick. Without a radical change by the DOI and the MMS, there will continue to be destruction of the shallow seas and continental shelf.

Submitted by OceanLibrarian at: December 7, 2012

None of the above. I would focus on companies like Shell, working in deep water that appear to take the challenge (Like South China Sea) to include technical obstacles and European companies like Shell appear to have resources -- they may use their access to cladded materials (in vacuum fusion) which withstand the most extreme environments. In the past, the MMS has provided rewards for oil corporations while at the same time, allowing them to keep their R&D research from the Government. This necessitated that the MMS award contracts to U.S. heat transfer specialists and modelers to make inroads in calculations for safety and planning. Any contractor that works in the U.S. should have no special rewards or treatments -- no carrot and stick. They buy up options and do not drill. They keep the market to their advantage and their revenue stream needs to be re-evaluated by the DOI rather then MMS. Perhaps future contracts could also be looked at in the context of alternate energy source investment. That would make a better carrot.

Submitted by m polk at: December 7, 2012

Perhaps the military should consider awarding at least some of the contract to Chavez's Venezuelan operations == to aggrevate our right-wingers, if nothing else!

Submitted by Mary Saunders at: December 7, 2012

There are medium and small-sized oil and gas companies. What are the barriers to using these?

Submitted by Braindead at: December 6, 2012

Mon. Gordon: you must appreciate that petroleum products are global commodities. What BP does not sell to the government it may well be selling to the company, including a competitor, that does. That is the way ubiquitous commodities work. Further, there will be waivers, if not in time, in place. There are certain fueling and refueling stations where BP is the only or the only feasible supplier. (Think: our two wars and all of their support.) This kind of hiatus is not going to dent very much BP's business objectives, and USG customers won't let it inconvenience them or threaten their missions. So, before you start blowing the Big Horn of Victory, take a deep breath--and try to be less breathless.

Submitted by Jack at: December 6, 2012

Their is no such thing as a creditable energy company and the fines they pay for their criminal actions is nothing but a drop in the bucket and probably tax deductible.

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