BP OIL SPILL PART I“STATUS & ISSUES OF COMPENSATION

AND PENALTY DOLLARS FROM THE DEEPWATER HORIZON DISASTER” 63RD ANNUAL SPRING MEETING OF GSMFC

bySemoon Chang, Chief Economist

Gulf Coast Center for Impact StudiesMarch 19, 2013; Destin, Florida

changsemoon@yahoo.com

June 13(Sun), 2010

TABLE OF CONTENTS (SEMOON’S DRAFT PAPER) I. BP Claims Process II. Gulf Coast Claims Facility of Aug, 23, 2010

II-1. GCCF Final Rules and Payment Methodology II-2. ARPC Methodology II-3. First Modification to the Final Rules II-4. Second Modification to the Final Rules II-5. GCCF One Year Later II-6. Order and Reasons

III. Settlement of April 18, 2012 III-1. Settlement Class III-2. Settlement Categories III-3. Causation Requirements for Business Economic loss Claims III-4. Causation Requirements for Individual Economic loss Claims III-5. Risk Transfer Premiums III-6. Preliminary Approval of the Settlement

IV. RESTORE Act of July 16, 2012 V. Idle Iron Notice of October 2010 Vi. BP Criminal Claims Settlement of Nov. 15, 2012 ViI. Conclusions Selected References Appendices:

KEY DATES I2008 March BP purchases the rights to drill at Macondo

well April 6 US Dept of Interior exempts BP from

detailed EIS after concluding massive oil spill unlikely

2010 April 20 9:45 pm CDT Deepwater Horizon explodes;

killing 11, injuring 17, & 98 no serious injury May 27 Obama announces six-month

moratorium on new deep water oil drilling permits in 500 feet (150 m) of water or more

June 7 Complaint filed against the poratorium: Hornbeck Offshore Services v. Salazar

KEY DATES II (CONTINUING 2010) June 22 U.S. District Court for the Eastern District of

LA issues restraining order against the moratorium July 8 U.S. Court of Appeals for the Fifth Circuit

refuses to overturn moratorium July 10 Salazar issues new moratorium effective

until November 30 August 23 GCCF assumes responsibility on claims Oct. 12 Obama administration lifts the moratorium

on deep water oil drilling in the Gulf, weeks before midterm elections

Dec. 15 U.S. DOJ files a lawsuit against BP and 8 other companies for cleanup expenses, ad

environmental recovery including damages to natural resources; it also seeks civil penalties under the Clean Water Act.

KEY DATES III2011 Feb. 18 GCCF publishes Final Rules on Payment

Options, Eligibility, etc2012 April 18 MDL “Final Settlement” announced July 6 The "Resources and Eco systems Sustainability,

Tourist Opportunities, and Revived Economies of the Gulf Coast States Act of 2011" (RESTORE)

Nov. 15 $4.5B plea deal on criminal fines against BP announced

2013 Jan. 3 $1.4B plea deal on criminal abd civil fines against

Transocean (owner of the rig) announced Jan. 29U.S. District Judge Sarah Vance of New

Orleans approves the $4.5 (4.0?) plea deal.

SCOPE OF CLAIMS TO GCCF AS OF MAY 1, 2012 _________________________________________________ State of Submitted Paid Claims Amount Paid Residence Claims _________ _________ __________ ________________ Louisiana 377,608 123,123 $ 1,815,692,796.56 Florida 370,361 167,821 $ 2,383,420,109.03 Alabama 143,531 55,117 $ 949,268,603.71 Mississippi 110,408 34,776 $ 566,460,181.70 Texas 25,042 6,723 $ 246,750,695.60 Others 49,839 22,259 $ 382,933,990.97 ________ __________ ________________ Total 1,076,789 409,819 $ 6,344,526,377.57 _________________________________________________ Source: Gulf Coast Claims Facility, May 1, 2012.

Will review Selected Issues

“FINAL RULES” BY GCCF 2-18-2011 Three Payment Options: Final, Interim, &

Emergency Payment In principle, documented losses based on

a comparison to income from prior years for the same months

Appearance more than substance(?) Introduction of Future Recovery

Factor: “a Future Recovery Factor of 1.0 (two times the actual documented losses) in 2010 is fair and reasonable.” for losses less than $500,000.

ARPC METHODOLOGY IN “FINAL RULES” GCCF relied on ARPC (Analysis-Research-

Planning) of Washington DC Attachment A, dated August 16, 2011, titled

“ARPC Methodology for Calculating Interim Payments for 2011 Losses Due to the Oil Spill”.

NAFE had no chance! Required: “all claimants demonstrate a revenue

and/or earnings growth rate of at least 5% from 2010. If the claimant demonstrates a growth rate of at least 5% from 2010, the losses would be presumed to be due to the Oil Spill.”

No evidence of growth rates being challenged.

THE SETTLEMENT: MULTI-DISTRICT LAWSUITSOFFICIAL CITATION “Deepwater Horizon Economic and Property

Damages Settlement” U.S. District Court, Eastern District of Louisiana MDL NO. 2179, SECTION J Related to: Bon Secour Fisheries, Inc., et al., individually

and on behalf of themselves and all others similarly situated, Plaintiffs, v. BP Exploration & Production Inc; BP America Production Company; BP p.l.c., Defendants.

Civil Action No. 12-970, Section J Document 6276-1 Filed 04/18/12

SETTLEMENT CATEGORIES (A) Seafood Compensation Program (B) Economic Damage Compensation that applies

to “businesses, or to self-employed individuals (C) Subsistence Damage Compensation that applies

to those “who fish or hunt to harvest, catch, barter, consume or trade Gulf of Mexico natural resources

(D) VoO Charter Payment (E) Vessel Physical Damage Compensation (F) Coastal Real Property Damage Compensation (G) Wetlands Real Property Damage Compensation;

and (H) Real Property Sales Damage Compensation

SPILLIONNAIRES (OWNERS OF SEVERAL VESSELS) Under the (D) VoO Charter Payment program,

“WORKING VoO PARTICIPANTS are entitled to the following payments, based on boat size, representing pay for 26 days’ work: Boat Size Amount of Compensation Less than 30 feet $41,600 30 feet-45 feet $49,400 46 feet-65 feet $62,400 Greater than 65 feet $88,400

“NON-WORKING VoO PARTICIPANTS: Boat Size Amount of Compensation Less than 30 feet $4,800 30 feet-45 feet $5,700 46 feet-65 feet $7,200 Greater than 65 feet $10,200

“NO CONSCIENCE” COMPENSATION: (FOR LAWYERS?) EVIDENCE OF CAUSATION NOT REQUIRED (a) businesses (and their employees) in Zone A (b) “Landing Site,” or “Commercial Wholesale or Retail

Dealer A,” or “Primary Seafood Processor” (c) “Commercial or Wholesale or Retail Dealer B,” or a

“Secondary Seafood Processor,” or a “Seafood Wholesaler or Distributor,” or a “Seafood Retailer” in Zone A, B or C

(d) businesses meeting the “Tourism Definition” in Zone A or Zone B; and

(e) businesses meeting “Charter Fishing Definition” in Zone A, B or C.

Businesses in Zones B, C and D not entitled to the presumption of no requirement of evidence must demonstrate “revenue patterns” stated in the Settlement.

RISK TRANSFER PREMIUM (RTP) RTP means “the amount paid to a

Claimant for any and all alleged damage, including potential future injuries, damages or losses not currently known..”

For example, “if the Compensation Amount is $1, and the RTP is 2.5, then $1 is multiplied by 2.5, which product is then added to the $1 to reach the total amount of compensation ($1 + $2.50 = $3.50 in total compensation)”

RTP figures are yet to be challenged.

SELECTED RTPS EXHIBIT 15 OF THE SETTLEMENTBusiness Economic Loss Claims:

Businesses satisfying Tourism Definition located in: o Zone A 2.50 o Zone B 2.00 o Zone C 2.00 o Zone D 1.25

Non-Tourism and Non-Seafood Businesses located in: o Zone A 1.50 o Zone B 1.25 o Zone C 0.25 o Zone D 0.25

Individual Economic Loss Claims: Employed by business satisfying the Tourism Definition and located in:

o Zone A 2.50 o Zone B 2.00 o Zone C 2.00 o Zone D 1.25

Employed by Non-Tourism and Non-Seafood Business in: o Zone A 1.50 o Zone B 1.25 o Zone C 0.25 o Zone D 0.25

THE RESTORE ACT OF JULY 16, 2012The "Resources and Eco systems Sustainability, Tourist Opportunities, and Revived Economies of the Gulf Coast States Act of 2011“

Establish the Gulf Coast Restoration Trust Fund; 80 percent of all administrative and civil penalties in accordance with section 311 of the Federal Water Pollution Control Act.

“CAN BE SPENT BY STATE AND LOCAL GOVERNMENT OFFICIALS” (ON EVERY THING?) (I) Coastal restoration projects and activities. (II) Mitigation of damage to, and restoration of, fish,

wildlife, or natural resources. (III) Implementation of comprehensive conservation

management plan, including fisheries monitoring. (IV) Programs to promote tourism in a Gulf Coast State. (V) Programs to promote the consumption of Gulf seafood. (VI) Programs to promote education regarding the natural

resources. (VII) Planning assistance. (VIII) Workforce development and job creation. (IX) Improvements to or upon State parks. (X) Promotion of the long-term ecological or economic

recovery. (XI) Coastal flood protection and infrastructure. (XII) Administrative costs.

POLITICS In Sept., 2012, the DOJ made a proposal

that “would divert a greater portion of the fines toward a Natural Resource Damage Assessment (NRDA), reducing the amount paid in civil penalties for violating the Clean Water Act. … They’re also tax deductible – a major incentive for BP. Clean Water fines, by comparison, are not deductible and would flow primarily to the five Gulf Coast states through the Restore Act … In comparison to the Restore Act, Alabama, Mississippi and Texas are likely to lose, while Florida and Louisiana will gain.” (Press-Register October 3, 2012)

BP CRIMINAL CLAIMS SETTLEMENT OF 11-15-12 $4.5B settlement between U.S. and “all criminal

claims” against BP (no waiver); $150M against Exxon Valdez (1989) of which $125M waived.

(a) $2.4 billion to the National Fish and Wildlife Foundation

(b) $1.3 billion in criminal fines, which could go to the U.S. Coast Guard’s Oil Spill Liability Trust Fund

(c) $525 million to the Securities and Exchange Commission to settle criminal charges that BP misled investors; and

(d) $350 million to the National Academy of Sciences “How that money gets divided among the states

remains uncertain” (Press-Register, Nov. 18. 2012, 6A)

BROAD PROGRESSIONS TO SUMMARIZE

Criminal lawsuits by US (against BP;others)$4.5+B

MDL civil lawsuits into the Settlement $7.8B Civil lawsuits outside the MDL Settlement

(states; private) $??? Civil fines (Clean Water Act and Oil Pollution

Act) through the RESTORE Act $5B to over $20B

Fines if BP is guilty of:simple negligence – $1,000 per barrelgross negligence - $4,300 per barrel And then …

PARTING WORD: LOSS OF PUBLIC GOODS Virtually, the entire compensation has been left to

the litigation and negotiation by the U.S. Department of Justice with no mention of Future Recovery Factor or Risk Transfer Premiums.

When the amount of fines is determined before any valuation of public goods is made, and when the local distribution of fines and contributions is determined almost exclusively by local politicians and leaders of the tourism industry, it is interesting to see how much more useful the valuation based on stated preference methods is than no number, contrary to claims made by Kling, Phaneuf, and Zhao “From Exxon to BP: Has Some Number Become Better than No Number?” Journal of Economic Perspectives, Fall 2012, 3–26.

BP OIL SPILL PART II“NEW IDLE IRON NOTICE

REQUIREMENT THAT LEADS TO DECOMMISSIONING OF OLD OIL/GAS

PLATFORMS” 63RD ANNUAL SPRING MEETING OF GSMFC

bySemoon Chang, Chief Economist

Gulf Coast Center for Impact StudiesMarch 19, 2013; Destin, Florida

changsemoon@yahoo.com

MMS STUDY JULY 2007 Operators also have a strong economic

incentive to maintain structures offshore: to defer the cost of removal to increase the opportunity for resale to reduce the risk and expense of storing

platforms in a fabrication yard to maintain a hedge against future development

opportunities, and to reduce the overall cost of decommissioning

through economies of scale, scheduling, and shared mobilization.

Then, oil spill of April 20, 2010 and Announcement on September 15 by Buearu of Ocean Energy Management to be effective on October 15, 2010.

TERMINOLOGIES “idle iron” - wells, platforms and pipelines

that are no longer producing or serving exploration or support functions related to the company’s lease.

“decommissioning” - a process that involves plugging wells and dismantling and removing platform structures and pipelines in a timely manner’

Law until Sept. 15, 2010 announcement: Idle iron should be removed “no later than one year following the expiration of the lease.” The new NTL (notice to lessees) became effective Oct. 15, 2010.

ACTUAL DOCUMENT TITLE UNITED STATES DEPARTMENT OF THE INTERIOR

BUREAU OF OCEAN ENERGY MANAGEMENT, REGULATION AND ENFORCEMENTGULF OF MEXICO OCS REGION

NTL No. 2010-G05 Issue Date: September 15, 2010Effective Date: October 15, 2010Expiration Date: October 14, 2013

NOTICE TO LESSEES AND OPERATORS OF FEDERAL OIL AND GAS LEASES AND PIPELINE RIGHT-OF-WAY HOLDERS IN THE OUTER CONTINENTAL SHELF, GULF OF MEXICO OCS REGION

Decommissioning Guidance for Wells and Platforms

THE IDLE IRON NOTICE TO LESSEES (NTL 2010 G05) OF OCTOBER 2010. “Under the 2010 rules, wells that hadn't been

used for five years were to be abandoned or “zonally isolated” within three years after Oct. 15, 2010. If wells were zonally isolated, operators had two additional years to abandon them. Platforms and supporting infrastructure that were idle for five years or more were to be removed within five years from mid-October 2010.”

(Susan Buchanan, “Push Is On To Declutter Gulf of Idle Iron,” MarineNews, August 1, 2012)

MARK J KAISER OF LSU “DECOMMISSIONING ACTIVITY FORECAST HIGH FOR GULF OF MEXICO SOCIAL MEDIA TOOLS” IN OIL & GAS JOURNAL, NOV. 7, 2011; WWW.OGJ.COM.

OFFSHORE STATISTICS BY BSEE These statistics reflect data through 02-04-2013

09:44:48 AM (CST) Water Depth Active Approved Active

in Meters Leases Applications Platforms to Drill

0 to 200 1,75634,773 2,745 201 to 400 117 1,11320 401 to 800 290 855 10 801 to 1000 387 569 9 1000 and Above 3,4101,80825

WIDELY-VARYING COST ESTIMATES $1.8 to $3.6 billion to remove structures in the

Gulf of Mexico. (Mark J Kaiser of Center for Energy Studies, Louisiana State University, Lillehammer Energy Claims Conference, March 2-4, 2011 - powerpoint)

$5 billion in the Gulf of Mexico, $12 to $15 billion in North Sea, and $5 to $40 billion worldwide. (“Proceedings: Public Workshop Decommissioning and Removal of Oil and Gas Facilities Offshore California: Recnt Experience and Future Deepwater Challenges”, Vetura, California, September 23-25, 1997, p. 20)

$4 million to $10 million to decommission individual oil and gas installations “in the shallow water Gulf of Mexico.” (http://www.rigzone.com, accessed December 22, 2012)

NEWS RELEASE SEPT. 14, 2013 BY SECRETARY OF THE INTERIOR KEN SALAZAR AND BUREAU OF OCEAN ENERGY MANAGEMENT, REGULATION AND ENFORCEMENT DIRECTOR MICHAEL R. BROMWICH

“will require oil and gas companies operating in the Gulf of Mexico to set permanent plugs in nearly 3,500 nonproducing wells that are currently completed with a subsurface safety valve in place and dismantle about 650 oil and gas production platforms if they are no longer being used for exploration or production.”

SELECTED GOM FIRMS CAPABLE OF DOING DECOMMISSIONING WORK Bisso Marine of Houston and New Orleans Versabar of Houston and New Orleans Resolve Marine Group of Fort Lauderdale Manson Gulf of Houma Marine Salvage Firms

TITAN Salvage of FloridaD&L Salvage & Marine Services of the

Port of West St. Mary in Franklin (LA)

POSSIBLE IMPACT & ISSUES RELATING TO GSMFC(ONLY QUESTIONS, NO ANSWERS – NEED JOINT STUDY AMONG MFC PARTNERS?) Basics

How many active rigs by age by state How many idle rigs by age from the date of capping by state How many, and which, capped rigs are used as artificial fishing

reefs by commercial and recreational fishermen? Review of old laws of decommissioning within 12 months of

expiration the the lease Develop removal timeline of capped rigs by state Determine impact of the removal on the fishing industry

Commercial fishing recreational fishing

If the old platforms were used mainly by recreational fishermen, will their removal lead recreational fishermen to commercial stock and make the conflict between commercial and recreational fishermen worse?

POSSIBLE IMPACT ON THE BUSINESS COMMUNITY IN THE GULF COAST Determine the potential dollar amount

from decommissioning business Can the information be related to coastal

businesses for possible preparation and participation in the decommissioning business

Project long-term year by year business volumes for coastal businesses

Key question: Are these ideas, i.e., is the impact of the new regulation, worth the efforts of GSMFC or coastal Sea Grant Consortiums?

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Chapter 2

Thank You!