WASHINGTON, (Reuters) – The U.S. government banned BP Plc from new federal contracts yesterday over its “lack of business integrity” in the Deepwater Horizon oil spill in 2010, a move that could imperil the British energy giant’s U.S. footing.
The suspension, announced by the U.S. Environmental Protection Agency, comes on the heels of BP’s Nov. 15 agreement with the U.S. government to plead guilty to criminal misconduct in the Gulf of Mexico disaster, the worst offshore oil spill in U.S. history. BP agreed to pay $4.5 billion in penalties, including a record $1.256 billion criminal fine.
BP and its affiliates are barred from new federal contracts until they demonstrate they can meet federal business standards, the EPA said. The suspension is “standard practice” and BP’s existing U.S. government contracts are not affected, it said.
The EPA’s suspension of contracts could push BP to settle civil litigation brought by the U.S. government and states from the spill. An EPA official said government-wide suspensions generally don’t exceed 18 months, but can continue longer if there are ongoing legal cases.
In a statement, BP said it has been in “regular dialogue” with the EPA, and that the agency has informed BP that it is preparing an agreement that “would effectively resolve and lift this temporary suspension.” The EPA has notified BP that the draft agreement will be available soon, BP said.
The suspension could threaten BP’s dominance in the Gulf of Mexico, where it is one of the largest producers of oil and natural gas and the largest lease-holder. U.S. operations accounted for over 30 percent of BP’s pre-tax
profits in the third quarter, and the United States accounts for about a fifth of BP’s global oil production.
The suspension could also hamper BP’s ability to maintain its position as a top supplier of jet fuel and other refined products to the U.S. military, the largest single buyer of oil in the world. As recently as September, BP affiliates won two fuel supply contracts with the U.S. military worth as much as $1.37 billion to supply fuel to the U.S. Defense Logistics Agency, the Pentagon’s procurement arm, according to a U.S. website that tracks military contracts.
The suspension is a sign that all federal contractors will be held to high standards, said Scott Amey, general counsel for the Project on Government Oversight, a federal watchdog group.
“BP had years to improve its business ethics and is paying the price for its inaction,” Amey said.
However, the suspension will have a “minimal direct financial impact,” and will not impair BP’s ability to produce oil and gas from existing U.S. assets, said Pavel Molchanov, an analyst with Raymond James & Associates Inc in Houston.
“BP’s supply contract of fuels to the Pentagon might be at risk, but of course BP could supply other customers if this supply contract is not renewed,” Molchanov said in a research note.
