The threat posed to our marine and coastal environment by the Texas oil company, Anadarko
by Gordon Campbell
“This government is very clear, we won’t let cowboys operate here in New Zealand.” – Prime Minister John Key, addressing the NZ Petroleum industry annual conference in Auckland, April 29, 2013
If all goes well for the Texas oil company Anadarko, it will be operating in fresh locations here by December, after it has picked up its new ultra-deepwater drilling ship ( called the Noble Bob Douglas) from a South Korean shipyard. However, any New Zealander who might have wanted to protest against this next phase of Anadarko’s activities off our coastline have just had their right to do so severely restricted by Energy Minister Simon Bridges, and without the regulations involved being subjected to parliamentary scrutiny, or vetted for compatability with our Bill of Rights. From June of this year, those who damage or ‘interfere’ with offshore oil and mining operations will face a year in jail or a $50,000 fine, while fines of $10,000 will apply to those individuals who come within a 500 metre ‘no go’ zone, and fines of up to $100,000 will be levied on organisations that support such actions.
Anadarko is the main corporate beneficiary of these regulations. Company spokesmen indicated last year that Anadarko would be drilling in November or December 2013 off the Oamaru coast and later off the coast of Taranaki. Moreover, out of 12 offshore blocks located in deep sea conditions ( ie, at greater than 200 meters depth) that the Government put up for tender in its last bidding round, only four were awarded. Two of these, the PEG1 and PEG2 permits in the Pegasus Basin – whiuch is an area that stretches from off the Wairarapa coastline to east of Marlborough – were awarded to Anadarko New Zealand, a wholly-owned subsidiary of Anadarko Petroleum Corporation, whose corporate headquarters are located just north of Houston, Texas.
This will not be the first time that Anadarko has enjoyed special treatment. Barely a week before our last general election in November 2011, Prime Minister John Key found time to divert from his busy campaign schedule for a meeting back in Wellington – purpose unknown – with Anadarko’s then-CEO, James Hackett. The notables who have expressed concern about the government’s curtailment of the civil rights to protest include former Prime Minister Sir Geoffrey Palmer QC, and Dame Anne Salmond. Those who feel a particular concern about Anadarko’s track record as a corporate citizen point to Anadarko’s 25% stake in the Deepwater Horizon well in the Gulf of Mexico, which exploded in flames in 2010 and killed 11 workers, before leaking hundreds of tons of oil into the Gulf, damaging the marine and coastal environment.
Mindful of these concerns, Anadarko sought to re-assure the NZ public last December in these terms:
John Gordon, Anadarko exploration manager, Asia Pacific, said the company had been a passive investor in the BP [Deepwater Horizon] well. “At no time did Anadarko have any input or say in the operation of the well in the planning or execution.” It settled with BP by paying it US$4b, though there was no legal ruling which forced that. Asked what assurance it could give about drilling in deep water, Mr Gordon said: “Anadarko has been doing the same for 20 years. We have done so with a very successful safety record and without a major incident in that time. “
As this article will document, almost everything in that statement of re-assurance would seem to be false.
The credibility of of Anadarko’s assurances to New Zealanders – rests largely (but not entirely) on the express claim that the company was only a ‘passive investor’ in the Deepwater Horizon rig, and that it didn’t have ‘any input or say in the operation of the well in the planning or execution.’ An investigation by Werewolf indicates otherwise. For starters, Anadarko’s claim (above) that it has had 20 years of experience in deep water drilling, appears to more than double the relevant figure, judging by this authoritative report by FMC Technologies of Houston, Texas that shows the contracts for “Anadarko’s first [ my emphasis] deepwater development project” were awarded between 2002 and 2004, and this project came online only in July 2004, according to this Anadarko press release.
In other words, Anadarko seems to have fewer than ten years experience at the business end of deep sea drilling, not the 20 years it claims.
Moving to the main point: well before Anadarko gave that public assurance last December, it was in receipt of a court order filed on February 22nd 2012 in the US District Court, Eastern District of Louisiana, in which the company had sought summary judgement to dismiss its share of liability for the Deepwater Horizon disaster. The US federal government and state governments in Louisiana and Mississippi have consistently alleged that Anadarko caused and/or contributed to the Deepwater Horizon spill by among other things, failing to assure that control was maintained by proper and adequate (a) cementing, (b) inspection and maintenance of the blowout preventer stack, and (c) adequate well monitoring. In that February 2012 judgement, Judge Carl Barbier concluded that Anadarko was indeed liable, as a co-owner :
“Liability for OPA [Oil Pollution Act] removal costs and damages is joint and several, vis-à-vis BP and Anadarko and the subsurface discharge. Furthermore, because it is undisputed that BP and Anadarko were owners of the offshore facility, BP and Anadarko are liable for civil penalties [under the Clean Water Act]”.
More to the point, the evidence indicates they were not ‘passive’ investors. As will be explained in detail later in this article, Anadarko was intimately involved in approving and funding the details of the well’s operations before the blowout – and in approving the response plan devised to cope an emergency. That’s one reason why Judge Barbier’s summary judgement is merely the tip of the iceberg when it comes to Anadarko’s legal battles over its saferty and environmental record. In the past year, there have been are at least three major actions before ( or pending within) the US courts directly relevant to Anadarko’s reputation as a good corporate citizen and steward of the environment. Two are related to the Deepwater Horizon affair, and a third has to do with the bankruptcy of a firm called Tronox, a former subsidiary of the Kerr-McGee company which was bought for $18 billion by Anadarko three months after Kerr-McGee had cut Tronox loose.
The reason Tronox went under is alleged to have been – in large part – the legacy costs of environmental cleanups and the health claims for compensation after decades of Kerr-McGee’s site contaminations, for which both Kerr- McGee and its new parent (Anadarko) have sought to avoid liability. The US government (acting on behalf of its Environmental Protection Agency) has sued Anadarko for its role with regard to Kerr-McGee’s shedding of those cleanup costs, as a prelude to the purchase of the company’s valuable oil and gas assets by Anadarko. That case has gone before the US courts, and a judgement is expected by mid year. (More on Tronox below).
The over-riding issue at stake here is whether Anadarko’s history as a corporate citizen in any way justifies the welcome mat being put out for it by the Key government. Not to mention the insulation from protest action that is being extended to it at the expense of the civil rights of ordinary New Zealanders, and with the related risk to our environment. As mentioned, and on the FMC Technologies evidence, the company’s December 2012 claim to 20 years experience in deep sea drilling seems false. Anadarko’s further claim to being only a “passive” investor in Deepwater Horizon ( and by implication, not really responsible for the lack of adequate safety provisions to prevent the disaster ) also appears false. At the very least, Anadarko was a central part of the decision making process (together with BP) via a Joint Operating Agreement, that led to safety breaches and cost cutting, which directly resulted in the disaster.
The isolation of New Zealand is one major reason why our governments should be exercising a correspondingly greater degree of caution before embarking on oil and gas exploration – in that the kind of safeguards now mandatory in the US remain notably absent in New Zealand, largely because of our remote location and the relatively small value of the operations here. As a consequence, our isolation leaves us highly vulnerable in the event of a spill, given that the well capping gear (ready access to which is now a pre-requisite in the US) will take an extremely long time to arrive here, as both these media reports indicate :
“New Zealand’s isolation makes it particularly vulnerable to a Gulf of Mexico-style oil spill, marine pollution experts say…..In the Gulf of Mexico, where there are more than 3800 oil and gas platforms, towing in a relief operation was relatively easy….In New Zealand…help could take longer to arrive with potential rescue platforms a long distance off…A similar leak [to Deepwater Horizon] at Montara oil field, in the Timor Sea, took 79 days to shut off.” – Dominion –Post, 23 June 2010
Access to well containment gear – capping stacks – was compulsory in the United States and they were deployed around the world in industry centres, the closest of which [to New Zealand] is in Singapore – New Zealand Herald, April 30, 2010
Regardless, the Key government has announced this week that it intends to open up vast new areas – both onshore and offshore – for oil and gas exploration in New Zealand. As RNZ has reported, the bidding for the second round, covering 189,000 square kilometres offshore and more than 1500 onshore, is due to start on 24 May. There will be three onshore blocks on offer in Taranaki, two on the East Coast of the North Island, and three offshore areas in the Reinga-Northland Basins, the Taranaki Basin and Great South Canterbury Basins. This makes it all the more pressing – if one truly wants to weigh the potential benefits against the actual risks in what is an inherently risky line of business – to examine the safety credentials of the likely contenders.
As mentioned, Werewolf has identified at least three major US court proceedings against Anadarko, all of them relevant to whether the company deserves to be invited here to operate, unhindered, off our coastline. These are:
(a) the summary judgement of February 2012, and the related and pending Clean Water Act prosecution by the US government .
(b) the separate class action court proceedings brought by a group of Anadarko’s shareholders alleging violations of Federal securities law for the way the company allegedly misled investors to the extent of the company’s involvement in the disaster and its exposure to losses and damages. On several occasions the company has sought dismissal of this suit, so far unsuccessfully.
(c) the Tronox case. Market insiders are expecting that when the court delivers its findings mid-year, Anadarko will be held to some degree accountable for Kerr-McGee’s evasion of environmental cleanup costs on the sites it owned and – according to the analyst cited here – the market is factoring into the Anadarko share price a likely fine in the region of $4 billion, which is considered “manageable” given the company’s current financial strengths and its future outlook. ( On the upside for the company, Anadarko has already reported two significant finds this year in its Gulf of Mexico deepwater fields.)
On this point of Anadarko’s ability to sustain any fines imposed on it, one should note in passing that the maximum penalty under the new New Zealand legislation is $NZ10 million – if and when an environmental disaster is deemed to result from the culpable actions of an offshore oil or mining operation. One has to ask – what, exactly, does the Key government think is the deterrent value of a $NZ10 million fine ( even if the maximum culpability could be proved ) to a company that can evidently ride out a $US4 billion fine (at least) on Tronox ? (In 2011, Anadarko also paid out a further $4 billion in full settlement of its liabilities to BP over the Deepwater Horizon spill.) By comparison, New Zealand’s fines seem to be little more than coffee money.
Moreover, the deterrent aspect of any spill liability is severely diminished when – as was pointed out in a previous Werewolf article – many of the costs from oil spills are tax deductible for the company involved.
Courts can impose punitive damages against a company when its actions cause harm. The [US] tax code, however, lets companies write off their payment, which produces an after-tax savings worth about 40 percent. Take the case of the Exxon Valdez, a tanker ship that ran aground and released nearly 11 million gallons of oil into Alaska’s Prince William Sound in 1989. Following this spill a court set punitive damages at $5 billion. Exxon litigated the decision for nearly 20 years until 2005 when the Supreme Court slashed the company’s punitive damages to $500 million. Of that, Exxon paid about $300 million after taking its tax deduction for punitive damages. Exxon’s profits that same year totaled $36.1 billion.
Leaving aside punitive damages, the costs to oil companies of the actual clean up after an oil spill are also tax deductible. via the federal government’s so-called Brownfields Tax Incentive:
The incentive allows a taxpayer to fully deduct the costs of environmental cleanups in the year the costs were incurred rather than spreading them over a period of years. Its purpose is to spur the cleanup and redevelopment of brownfields. In December 2006, the Brownfields Tax Incentive was….expanded to allow the deduction of expenses for the cleanup of petroleum products (e.g., crude oil, crude oil condensates, and natural gasoline), which had previously been ineligible.
In other words, not only would Anadarko incur a trifling fine if its activities caused lasting damage to our coastal and marine environment – but such fines would be likely to be tax deductible, and it would also be entitled to deduct any cleanup costs. Routinely, such cleanups cannot and do not restore the environment to its former pristine state. The companies involved tend to do a basic cleanup, then cut and run. Thus, any Great South Basin spill that might occur if and when Exxon-Mobil pursues drilling in the Great South Basin could well wipe out the livelihood of the Bluff fishing fleet and its oyster industry, with only minimal levels of compensation on offer by way of compensation. Risk is a one way street for oil companies:
In the case of the massive pollution in Ecuador, Chevron/Texaco….paid for a basic cleanup, then cut and ran. Ecuador is still chasing Chevron for $27 billion in compensation. In Alaska, small communities were left to bear the enduring cost….The herring industry of the town of Cordova was destroyed. The basic Exxon-Mobil compensation package left the Cordova fishers with an amount equal to about one year’s salary, for the lifelong loss of their previous source of income.
In the Tronox case, the reasoning involved is hardly re-assuring either, for a New Zealander. Does the following summary sound like a good corporate citizen that we should be inviting here, and for whom we should curtail our civil freedoms as a sign of our good intentions?
Kerr McGee spun off Tronox prior to Anadarko’s acquisition, in part to make it an easier, more palatable deal for Anadarko. Tronox was spun off with significant environmental liabilities, and Anadarko is being sued for what amounts to fraudulent conveyance. While Anadarko has fought these charges, it seems to be generally accepted on the Street that the company will be held liable. The question is for how much. Nobody seems to think that the maximum amount (which is north of $20 billion) is in play, but there are definitely risks that it could exceed the $4 billion or so that seems to be the average Street expectation.
According to the company, “a safety-first culture is a way of life at Anadarko.” Routinely in its publicity material, Anadarko stresses the extensive due diligence that it supposedly undertakes to ensure that each of its new business ventures adheres to the company’s purportedly rigorous “Environment, Health & Safety” standards. For example :
Whenever we undertake a new project, we work to understand the environmental issues and cultural considerations of an area. Then we create a balanced plan that couples new energy development with often times innovative techniques to protect the locations in which we operate. Fundamental to our operating philosophy is a commitment to adhere to the stricter of two standards: our own policies and principles or an individual country’s regulations.
Ironically, such statements are now being used against Anadarko in that class action suit being brought against the company in the Texas courts, by aggrieved Anadarko investors and shareholders. After citing ( in court filed documents ) many similar statements by Anadarko on its website and in company press releases, prospectuses etc, the claimants get down to what lies at the heart of their grievance:
The statements set forth above were materially false and misleading when made because, among other things, Anadarko was not managing its projects, including the Macondo well, in a manner that was safe or designed to ensure environmental safety. Nor did Anadarko have disciplined and rigorous risk management practices. For instance, when partnering with BP on the Macondo well, Anadarko deliberately or recklessly approved and adopted the materially false and misleading Oil Spill Response Plan and Exploration Plan. Anadarko also failed to properly investigate BP’s safety record and practices. Further, Anadarko approved dangerous and high-risk operational decisions for the Macondo well, failed to properly monitor operations on the Macondo well, risked the lives of the workers on the well, endangered wildlife, the environment and commercial interests along the Gulf coast, jeopardized the Company’s multi- million dollar investment in the Macondo well project and exposed the Company to billions of dollars in potential civil and environmental liability. Moreover, Anadarko completely failed to exercise any oversight over BP despite being alerted to BP’s egregious safety record.
On that last point, page four of the main brief makes this observation :
Anadarko also willfully or recklessly disregarded BP’s abysmal safety record, which was notorious within the oil and gas industry. For instance, between June 2007 and February 2010, BP received an astonishing ninety-seven percent of all egregious willful violations issued to all oil producers during that time. This shocking safety record put Anadarko on notice of a heightened need to closely review the contingency plans in place at the Macondo well….
To all apparent evidence, there was no sign of that added vigilance. On the contrary, Anadarko approved and funded how the well was being operated, on the basis of a Joint Operating Agreement, which included the agreed plans for the well infrastructure, and the approval of the related costs. As the shareholders further state at page 10 of their main brief :
BP proposed a series of reckless and dangerous actions on the Deepwater Horizon rig – which Anadarko approved and funded. Almost from the outset, the Macondo well earned a reputation as a “nightmare well,” and encountered numerous difficulties. As the project fell significantly behind schedule and became tens of millions of dollars over- budget, BP and Anadarko made a series of increasingly reckless decisions that deliberately sacrificed safety in order to save time and money. As discussed below…. Anadarko knowingly and expressly approved BP’s riskiest cost-cutting and time saving proposals. These decisions were contrary to the initial plans on the well and were made despite open acknowledgement of the safety risks they imposed. For instance, when BP and Anadarko agreed to depart from the original plans and use only six “centralizers” to secure the well (described in more detail below at pages 89-96), as opposed to the sixteen that the original plans called for, an internal email among BP personnel noted the risks but declared “who cares, it’s done, end of story, [it] will probably be fine.”
Lest anyone conclude that these criticisms are solely the views of a group of disgruntled investors, several official investigations also found that not only was this tragedy preventable, but due to a series of dangerous decisions made in drilling the well, most of them expressly approved by Anadarko. For example : the Energy and Commerce Committee appointed by Congress to investigate the causes of the Deepwater Horizon disaster described the Macondo Spill Response Plan (that BP and Anadarko jointly signed off to cover an emergency) as being “tragically flawed” and “embarrassing.”
In September 2010, the same Committee found that the numerous technical and operational breakdowns that contributed to the explosion on the Deepwater Horizon, and the resulting oil spill, were due to the “lack of a suitable approach for anticipating and managing the inherent risks, uncertainties, and dangers associated with deepwater drilling operations and a failure to learn from previous near misses.”
In findings congruent with the shareholder allegations, the Congressional Energy Committee’s Interim Report criticized the decisions taken by the co-owners’ [ie BP and Anadarko] to use the risky long string casing design on the Macondo well, as well as decisions to use only six centralizers, to conduct only a partial circulation of the drilling mud, and to not run a cement bond log. The Interim Report concluded that of particular concern was the “lack of a systems approach that would integrate the multiplicity of factors potentially affecting the safety of the well, monitor the overall margins of safety, and assess the various decisions from perspectives of well integrity and safety.”
Repeatedly, Anadarko has sought to pin the entire blame on BP for such failures. Yet this is not what the Congressional Energy Committee found in its Final Report. They found joint responsibility existed :
“A series of questionable decisions in the days preceding the blowout . . . had the effect of reducing the margins of safety and . . . evidenced a lack of safety-driven decision making,…The actions, policies, and procedures of the corporations involved did not provide an effective system safety approach commensurate with the risks of the Macondo well. The lack of a strong safety culture resulting from a deficient overall systems approach to safety is evident in the multiple flawed decisions that led to the blowout. Industrial management involved with the Macondo well/Deepwater Horizon disaster failed to appreciate or plan for the safety challenges presented by the Macondo well.”
Again, blame was attached to both BP and Anadarko :
“Neither [of] the companies involved . . . made effective use of real-time data analysis, information on precursor incidents or near misses, or lessons learned in the Gulf of Mexico and worldwide to adjust practices and standards appropriate..”
In similar vein, the National Commission report prepared for the US President Barack Obama concluded that “systematic failures in risk management” had been evident. Finally, sworn testimony by Michael Beirne, (the main liaison between BP and Anadarko over the Macondo Well) showed that in the summer of 2009, Anadarko had been provided with the well design plan and the well permit applications, and Anadarko had expressly approved them for use. Throughout the drilling process, Anadarko has been given immediate and continuous access to detailed information concerning all operations on the Deepwater Horizon oil rig.
Given the above evidence, the assurances that Anadarko has given to New Zealand that it was only a “passive investor” seem deliberately misleading and disturbing, in the light of their intended activities here. Much of the public opposition to Andarko’s presence – let alone the concern about the extraordinary steps taken by the government to penalise and deter protest action – is not based on any anti-corporate, anti-oil exploration mindset. It is based on a simple reading of Anadarko’s track record, on the nature of the litigation it is facing in US courts and on the patent inability of New Zealand to cope with a large spill created by deepwater drilling activities that involve an inherent degree of risk.
In many respects, the false assurances given to New Zealanders by Anadarko last December resemble the following exchange, cited at pages 87-88 of the Class Action main brief. This material relates to a May 4, 2010 conference call conducted barely two weeks after the explosion at the Deepwater Horizon rig. An analyst at RBC Capital Markets asked Anadarko executives : “How passive typically are you, when you are a non-operator? Were you a part of … the well’s design on Macondo?” In response, Robert Daniels, Anadarko’s senior vice-president for International and Deepwater Exploration [pictured left], sought to put daylight between the disaster and any responsibility that could conceivably be pinned on Anadarko. According to Daniels:
You actually do know what targets you’re going after and remembering we had farmed into this after the well had already spud. So the well design and it’s
procedures, operating procedures were all done before we actually farmed in.
When you typically approve these as a non-operator, you basically approve just the capital spending level in the targeted zones from a geological perspective, as opposed to looking at the detail, well design or procedures. We were not involved in that at all on this well.
The Anadarko shareholders have begged to differ. At page 87 of their Class Action brief they say:
Defendant Daniels’ May 4 statements that Anadarko and the individual defendants were “were not involved” in “looking at the detail, well design or procedures” with respect to the Macondo well were blatantly false when made. As described herein, Anadarko was intimately involved in and had full access to all “detail, well design [and] procedures” at the Macondo well. As confirmed by the testimony of [Michael] Beirne and expressly bargained for by Anadarko in the Joint Operating Agreement, Anadarko received and/or had unfettered access to copies of the well design, the Oil Spill Response Plan, the Exploration Plan…and other important documentation related to the well and the decisions made onboard the Deepwater Horizon, including all government filings and communications concerning the Macondo well, real-time data of wellsite drilling and operations from two separate databases that showed such specifics as drilling depth, torque and rate of RPM, as well as daily reports and mud logs. Further, as described above, Anadarko approved and funded four separate AFEs [Authorisations For Expenditure], including giving its express authorization to use the riskier long string casing, and acknowledging its awareness of the decision to run an inadequate number of centralizers.
And as already mentioned, other expert investigations have tended to agree with the shareholders. In September 2010, the Congressional Energy Committee found the numerous technical and operational breakdowns that contributed to the explosion on the Deepwater Horizon, and the resulting oil spill, were due to the “lack of a suitable approach for anticipating and managing the inherent risks, uncertainties, and dangers associated with deepwater drilling operations and a failure to learn from previous near misses.”
In the light of such findings, concern about Anadarko’s activities off the New Zealand coast seems utterly reasonable. Similar concerns seem appropriate about New Zealand’s ability to monitor Anadarko’s operations here, and to respond adequately should a major spill occur off our coastline. Much is being taken on trust, with crossed fingers that it won’t happen here. And that’s before mentioning our capacity to reliably monitor any subsequent uptake from the wells drilled, and our ability to negotiate a fair royalties rate truly commensurate with the value of the deposits, and the risks being undertaken. On all such counts, there are serious grounds for objecting to Anadarko’s activities off our coastline – and given the troubling aspects of the company’s recent environmental record, there is no valid reason for criminalizing those who might wish to protest its presence here.
2. The Clean Water Act prosecution.
Turning to the liability of Anadarko to proceedings by the US government under the Clean Water Act, Judge Barbier of the Louisiana District Court – outlined the basic situation at page 20 of the order filed in February 2012 :
Anadarko and BP were the ones directly engaged in the enterprise which caused the spill. They were the mineral lessees, they owned the well, and they stood to profit directly from the oil it produced. Thus, Congress intended that the cost of pollution would be borne by these parties.
Anadarko had tried to evade liability in this court action, via a tissue of extremely fine legal distinctions. For a New Zealand reader, the interesting point being that these arguments indicate what standards of proof – and what definitional niceties – would be necessary if this company was ever to be held liable for an environmental disaster off the New Zealand coast. Justice Barbier [pictured left] explained the Anadarko position in this fashion:
The United States contends that oil discharged from both the Macondo Well and the Deepwater Horizon; therefore, BP, Anadarko, and Transocean are each liable for per barrel civil penalties….However, Anadarko relies on the phrase “other than a vessel” in the definition of “offshore facility,” as meaning that “vessel” and “offshore facility” are mutually exclusive terms. Thus, Anadarko contends that oil could not discharge from both the vessel and the offshore facility. Furthermore, Anadarko interprets the phrase “from which oil . . . discharged,” as meaning the point where oil actually entered the marine environment. Because oil passed through the BOP [blowout preventer] and broken riser immediately before entering the Gulf, Anadarko contends that oil discharged “from” the Deepwater Horizon, a vessel, and not from the Macondo Well, an offshore facility….
Since its investment was in the well and not in the platform, Anadarko was hoping to escape liability, via these contortions. Judge Barbier wasn’t buying it. Anadarko and BP were the ones directly engaged in the enterprise which caused the spill, he reasoned : “They were the mineral lessees, they owned the well, and they stood to profit directly from the oil it produced. Thus, Congress intended that the cost of pollution would be borne by these parties.” In his partial summary judgement (p.22) Barbier therefore ruled against Anadarko :
The Court holds that, for purposes of [the Clean Water Act] and with respect to the subsurface discharge, oil discharged from the Macondo Well, an offshore facility. Conversely, the Court finds that the subsurface discharge was not from the vessel, the Deepwater Horizon. Furthermore, because it is undisputed that BP and Anadarko were owners of the offshore facility, BP and Anadarko are liable for civil penalties…
As a consequence – and as Bloomberg News reported in this recent and very useful summary of the various court actions alive and pending as of the recent third anniversary of the Deepwater Horizon spill – the US government still has a pending case against Anadarko for violations of the Clean Water Act. As the Bloomberg report also indicates, the state of Mississippi has just mounted actions in both state and federal courts against BP and others – including Anadarko – as a result of BP refusing to make a satisfactory settlement offer. The immediate issue before the courts in that action has to do with establishing whether a level of “gross negligence” by BP and others had been reached. In proceedings on April 24, 2013, Judge Barbier suggested a seven point action programme for the parties to consider before coming back in late June. With unconscious irony, Barbier asked the parties for their opinion whether complying with “industry standards” would preclude him making a finding of gross negligence. ie it may look like negligence to you, me, or the judge, but if that happens to be the industry standard, then can it really be called “gross” and penalized accordingly? Pretty amusing. Keep it in mind next time you hear the Key government rattle on about “best practice” standards being observed.
On April 24 2013, Anadarko made the latest of several attempts to get the class action suit (which contains allegations of securities fraud) dismissed. At time of writing, it was unclear what the fate of that action would be. Dismissal would seems unlikely, given that the same judge – in a similar case last year – presided over proceedings in which BP ultimately agreed to pay $525 million to investors for misleading them by significantly understating the flow rate from the Deepwater Horizon spill in multiple reports that BP filed with the Securities Commission.
Anadarko now faces similar claims from its own shareholders that in its response to the Macondo spill, its chief executives – including John Key’s pre-election guest James Hackett – deliberately understated the extent of the oil spill, overstated the company’s ability to control the repercussions, overstated the extent of its insurance cover relative to its likely liabilities etc etc , All of this presumably, in order to avoid a panicked reaction from shareholders. On current projections, the class action suit is unlikely to reach court until next year.
Of course, some will argue that whatever Anadarko’s sins may have been in the Gulf of Mexico, Deepwater Horizon was an unfortunate departure from Andadarko’s usual modus operandi. Surely, anyone is entitled to share joint responsibility for at least one gazillion dollar social and environmental catastrophe during their corporate lifetime, aren’t they?
Unfortunately, Anadarko’s behaviour in the context of the Tronox case makes it hard to believe that it merely fell in with the wrong crowd in the Gulf of Mexicom and got led astray by BP. To repeat the Tronox tale : Anadarko bought Kerr – McGee for $18 billion in 2006, three months after Kerr-McGee had spun off into its hapless Tronox subsidiary its own costly obligations to do remedial work on an estimated 2,772 sites across the US that it had contaminated during seven decades of producing chemicals, fertilizer and plutonium pellets.
That’s not to mention the cost of adequately compensating the thousands of individuals given serious (and in many cases) terminal illnesses by their mere proximity to Kerr-McGee’s operations. Movie fans who saw the 1983 film Silkwood starring Meryl Streep will recall the film showed Silkwood’s suspicious death in a 1974 car accident, while she was driving to meet a reporter and go public about Kerr-McGee exposing employees to plutonium through their poor safety standards.
In court action that concluded early this year, Anadarko is being sued for $25 billion in a suit originally brought by Tronox creditors and investors and by those with health claims against Kerr-McGee. They were later joined by the US government on behalf of the Environmental Protection Agency, which faces the cost of the clean-ups. One important question being – as Kerr-McGee’s corporate parent, is Anadarko liable only in a technical sense for Kerr-McGee’s past sins, or did it collude with Kerr –McGee in shedding its costly and poisoned liabilities, via stratagems carried out by Lehman Brothers ? To use an analogy – was Anadarko liable as a parent only in the sense that it was its kid who had sometime in the past, crashed the family car? Or did Anadarko actively conspire with the kid in concocting what was, in liability terms, a hit and run violation ?
At the outset of the Tronox proceedings, the US government was certainly alleging that a sham “ two step fraudulent process” had been carried out between Anadarko and Kerr-McGee. Proving such a conspiracy in court however, proved quite another matter. Some sense of the two sides in contention can be gleaned from this summary.
By the time that things got to the sharp end of the court action, the Tronox litigants had dropped the conspiracy theory. As the court papers show, neither the claims of a civil conspiracy or claims of aiding and abetting a breach of fiduciary duty were seen to hold water. Here’s a key paragraph from pages 15 of the court brief :
The Amended Complaint makes it clear that Anadarko had previously balked at acquiring unliquidated liabilities that could potentially reach into the billions of dollars, but the Plaintiffs have not alleged sufficient facts to support the conclusion that Anadarko acted in concert with New Kerr-McGee to structure the spin-off or that Anadarko dictated which assets and liabilities would be retained by New Kerr-McGee.
Even so – and as pointed out above – the market expectation is that Anadarko will be held accountable in the Tronox case, to the tune of $4 billion or more. For New Zealanders, the relevant aspect of this case has been the aggressive stance that Anadarko has taken against the Tronox litigants. Even if its subsidiary did the bad things in a previous corporate lifetime, Anadarko has chosen to fight on Kerr-Gee’s morally dubious behalf right to the bitter end. Within that process, delay can always be a useful substitute for victory. The simple truth is that the longer the delay, more and more claimants afflicted with terminal cancers will die, and drop off the compensation list. This has been occurring ever since the claimants first began chasing a moving ball in the early 2000s as Kerr – McGee went through various corporate formulations, a process that required the claimants to refile their claims against each new incarnation.
New Zealanders can read into the hostile defence being adopted by the defendants in the Tronox case just how badly they might fare if Anadarko should ever be called on to compensate those affected by contamination of our coastal or marine environment. Even if it was Kerr-McGee that was responsible for the original contamination, Anadarko has consistently opposed and sought dismissal of any attempt by those seeking justice and due compensation for the wrongs committed against them by what is now a wholly owned Anadarko subsidiary. A short video from mid 2012 in which local residents in Columbus Mississippi express their grievances about the damage done to them can be seen here.
In the Tronox affair, we are not talking about seals and dolphins. The video, and its following transcript comprise just one chilling example (among thousands) of the people whom Anadarko has been fighting tooth and nail in court:
Reverend Steven Jamison recalls the February day 13 years ago when he was digging ditches to replace culverts at his Maranatha Faith Center in Columbus, Mississippi. As he switched from a shovel to an excavator, an oily black substance began to fill the trench. It smelled like turpentine, and the deeper he dug, the more he saw….“We called the city right away to come and look,” says Jamison, 58, a Pentecostal minister whose speech quickens as he relives the incident. “They told us they thought we’d hit creosote.”
Jamison phoned the Kerr-McGee Corp. plant down the road. The company produced creosote, a toxic wood preservative, and coated railroad ties and telephone poles with it. A manager told him the stuff probably wasn’t creosote and that even if it were, it wouldn’t hurt anyone, Jamison says. So he kept working, immersing himself in sludge and bringing in dirt to absorb it.
After digging for six weeks, Jamison, who says he hadn’t had health problems beforehand, was sick and losing weight. He says his kidneys were functioning at less than a third of their normal level. That April, when Kerr-McGee offered to help remove the old culverts, the crew arrived in hazmat suits, Jamison says.
Wilbur Colom, a local lawyer who has worked on this (and previous) compensation claims explained to Bloomberg News the basic problem involved in continuing to fight :
Colom says he faced a big dilemma when he counseled clients whether to settle around 2002. Some were so sick that he advised them to take a payout sooner rather than endure drawn-out court proceedings. “Ten years later, all of the people who had serious cancers are dead,” Colom says, reviewing thousands of names next to such entries as “sarcoidosis with renal involvement,” “lung and colon cancer” and “dec’d ovarian cancer,” meaning deceased.
Jamison struggled with the temptation to settle too. He says lawyers for Kerr-McGee offered him $3 million to drop the lawsuit he brought on behalf of his church and not tell anyone he thought the tarry substance was harming people and properties around the plant.
A recent account of Reverend Jamison’s ongoing battle to get adequate compensation for what Kerr-McGee has done to him and his congregation can be found here.
It’s a losing hand. Even if Anadarko had to eventually pay the full $25 billion – which no –one is expecting – the individual claimants stand to get only 12% of that figure, or $2 billion gross in total. This would have to be shared among thousands of people, after legal costs had been deducted. The rest (north of 80%) will go to the US government to help pay for the cost of re-mediating the sites that Kerr-McGee has contaminated, lest others should derive cancers, kidney and respiratory failures, skin diseases etc from the toxic residue of its activities. The more likely outcome (which would deliver a 12% slice of circa $4 billion) would seem to be paltry compensation for the lives and communities that have been laid waste by business as usual.
At the close of a major Anadarko public presentation to investors in early March.
Anadarko’s chief financial officer Robert Gwin was asked from the floor for an update on Tronox. He replied :
The case and everything besides, rest. The judge at the end of January got his last briefing and we don’t know any more than anybody else does about when the judge might rule. We’ve estimated just based on historical stuff that we might see a three to six months kind of a window…We remain every bit as confident of our position as we were previously, didn’t change our accrual this last quarter, we think it’s appropriate, we think it’s right, and we’re looking forward to hearing from the judge.
No liability, and no compensation unless forced to by the courts. (“We think its appropriate, we think its right….”) This is the kind of corporate creature that the Key government has invited to exploit our deepwater oil deposits – and with a guarantee that it can do so unhindered by any substantive opposition from New Zealanders.