Alaska Fine Could Mean Huge BP Penalty for Gulf Spill

Analysts say the stiff per-barrel cost could result in $21 billion for Gulf

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BP and the U.S. government are still working out the final amount the oil giant will have to pay out for spilling an estimated 5 million barrels of oil into the Gulf of Mexico last year. Today, analysts said a decision yesterday on a penalty over another, much smaller Alaska spill indicated BP could be on the hook for a much larger penalty than previously thought. As high as $21 billion in addition to cleanup costs and other expenditures.

Yesterday, the company reached a settlement with the U.S. Department of Justice, agreeing to pay $25 million for spilling a little more than 5,000 gallons onto the Arctic tundra in March, 2006. At $4,900 per barrel, the fine is the highest per-barrel amount ever collected from oil company. The company will also spend $60 million to optimize its Alaska pipelines under yesterday's deal. That's giving rise to predictions that BP will not be let off lightly for the Gulf of Mexico disaster. Here's what Reuters's Tom Bergin had to say:

"The per barrel calculus is really sort of a way of communicating to the public that the Obama administration is very serious about this stuff," said Zygmunt Plater, Professor of Law at Boston College Law School.

BP has indicated it will face fines of under $5 billion related to the 2010 oil spill, rather than the around $21 billion it could face if it was found guilt of gross negligence -- a position that most analysts have accepted.

However, if the Alaska settlement is a template, BP could end up paying out well in excess of $21 billion, as the spill at Prudhoe Bay in 2006 was dwarfed by the nearly 5 million barrels spewed from BP's ruptured Macondo well last summer.

The Clean Water act sets a penalty of $4,300 per barrel for oil spills, and BP has already paid $20 million for the Prudhoe Bay spill in a separate 2007 criminal case in which it pleaded guilty to violating the act. Yesterday's verdict comes from a separate civil case that argued the company was negligent in maintaining its oil-pumping infrastructure. "BP can afford it," read a headline in the Seattle Post Intelligencer. But what about that Gulf case looming?

This article is from the archive of our partner The Wire.