Deepwater Horizon Oil Spill: Preliminary Assessment of Federal Financial Risks and Cost Reimbursement and Notification Policies and Procedures

Correspondence issued by the Government Accountability Office with an abstract that begins "On April 20, 2010, an oil spill of national significance in the Gulf of Mexico followed an explosion on the mobile offshore drilling unit Deepwater Horizon (the Deepwater Horizon oil spill). The Deepwater Horizon was leased by BP America Production Company (BP) as part of the Macondo project. 152 days later, on September 19, 2010, BP confirmed the completion of cementing operations to prevent further oil from spilling from the Macondo Prospect well to which the Deepwater Horizon was attached when it exploded. In order to coordinate the federal response to the Deepwater Horizon oil spill, the National Incident Commander established the Deepwater Integrated Services Team (IST) consisting of 18 federal agencies, including the U.S. Coast Guard and the Department of Justice (DOJ). The U.S. Coast Guard's National Pollution Funds Center (NPFC) designated two BP subsidiaries--BP Exploration and Production and its guarantor, BP Corporation North America, Inc.--and five other companies as "Responsible Parties" for Deepwater Horizon oil spill related claims. Shortly after the spill, at the direction of NPFC, BP established a facility to receive and process all claims against Responsible Parties. In June 2010, as part of an oral agreement between the administration and BP, BP established a new claims processing facility--the Gulf Coast Claims Facility (GCCF). GCCF began operations on August 23, 2010, and is responsible for handling claims from individuals and businesses for damages resulting from the Deepwater Horizon oil spill. BP also established an irrevocable trust (Trust), to which BP is to provide a total of $20 billion by 2014, primarily for the purpose of paying GCCF and other claims related to the Deepwater Horizon oil spill. The total cost to clean up this massive and potentially unprecedented spill, the damage to the environment, as well as the potential impact to the livelihood and economic status of businesses and individuals in the region will undoubtedly be significant, with current estimates from BP and Oxford Economics in the tens of billions of dollars. However, the full extent of such costs and the extent to which they will ultimately be paid by the Responsible Parties or federal, state, and local governments is unknown at this time and depends on a variety of factors. The complex legal framework in place for oil spill liability and response funding will play an integral role in determining who is responsible and will ultimately pay the costs associated with the Deepwater Horizon oil spill. In this regard, the Oil Pollution Act of 1990, as amended (OPA), which Congress enacted after the Exxon Valdez spill in 1989, authorized use of the Oil Spill Liability Trust Fund (Fund), which is administered by NPFC and is subject to certain caps on the amount of its expenditures. The Fund was established to pay for certain oil spill cleanup costs and damages using federal tax revenues for immediate response costs and when the Responsible Parties cannot be identified or do not pay. OPA also provided that the federal government may subsequently seek reimbursement for these costs from Responsible Parties. Since the Deepwater Horizon oil spill, a number of related legislative proposals have been introduced. The objectives of this study were to provide a preliminary assessment of (1) financial risks and exposures to the Fund and the federal government as a result of the Deepwater Horizon oil spill, and (2) Coast Guard's NPFC cost reimbursement policies and procedures for Deepwater Horizon oil spill costs.