Built to Spill


In Louisiana, fewer than one in 100 oil spills result in any fine whatsoever — so why should an oil company clean up after itself?

In the months since the April 20, 2010 blowout in the Gulf of Mexico, Louisiana regulators moved to fine BP Plc and two of its contractors as much as $1 million for each of the 86 days the runaway well gushed oil. The state attorney general also hired outside counsel to help pursue legal claims that may reach hundreds of millions of dollars. The goal is to restore the oil-stained coast “to what it was pre-spill,” said Gov. Bobby Jindal.

In hundreds of smaller, less noteworthy cases, Louisiana gave oil spillers a pass, a review of five years of regulatory data shows. Since 2007, the U.S. Coast Guard has reported fielding more complaints of oil and chemical spills from the thousands of wells and thousands of miles of pipelines in Louisiana than in any other state, exceeding 4,000 a year.

In 2009, Louisiana punished oil companies for fewer than one in 100 spills, data show. Fines are measured in thousands of dollars, not millions. They take years to collect and are seldom levied against even repeat spillers. A small gas station operator was penalized for faulty paperwork while the state’s biggest oil producer paid no fines in more than a dozen spills since 2002, according to state records.

“Lax enforcement leads to lax behavior,” says Paul Templet, who led the Louisiana Department of Environmental Quality (DEQ) from 1988 to 1992 under Gov. Buddy Roemer. “You let the little things go, and you set yourself up for something big to happen.”

Louisiana doesn’t have a spill-enforcement crisis, according to Jindal and officials of the DEQ, the state’s main pollution enforcement agency. The number of DEQ fines is influenced by cooperation with other authorities, Jindal said in a statement.

“It’s important to note that in many cases, if another agency like the Coast Guard, the U.S. Environmental Protection Agency (EPA) or state police has issued a penalty, then DEQ will not issue a penalty,” Jindal said. The DEQ has an agreement with the EPA and won’t seek fines if federal regulators are conducting a criminal probe, he said.

“Per square mile, we produce more oil than any other state,” says Chris Piehler, administrator of the DEQ’s inspection division. Most of the spills are small and “aren’t intentional.”

Even small oil spills have lethal consequences, said William J. Sydeman, a marine biologist and president of the Farallon Institute, a Petaluma, Calif.-based nonprofit marine research center.

“When you spill any amount of oil in a marine system, organisms die,” Sydeman said. The effects of chronic low-level spills like those in Louisiana are “a huge problem and far more damaging than most people suspect.”

In June 2005, a discharge estimated at 12 barrels (500 gallons, 1,900 liters) killed at least 460 brown pelicans, Amerada Hess Corp. said at the time. The leak was from a platform about 60 miles (100 kilometers) southwest of New Orleans.

Now, more than five years later, a damage assessment is “near completion” and state and federal agencies are “exploring restoration alternatives,” said Louisiana State Police Lieutenant Doug Cain, a spokesman for the Louisiana Oil Spill Coordinator’s Office (Losco). Losco works with oil companies to mitigate spill damages.

“We continue to work with the state of Louisiana on this issue,” Maripat Sexton, a spokeswoman for Hess, said in an emailed statement.

Another company avoided paying a penalty for 18 years, then settled at half the original amount.

On any day in Louisiana, there is likely to be more than one spill, the data show. In 2009, the state endured about 1,600 discharges of crude oil or a crude oil equivalent called condensate, including incidents in federal waters off the coast, state records show. About 540 leaks occurred onshore or in state waters, releasing almost 3,000 barrels of oil, the DEQ says.

Since the beginning of 2006, the agency opened or completed 46 spill enforcement actions against oil companies, about nine cases a year, according to state data. Those actions resulted in 28 penalties, a total that includes six settlements of incidents that occurred as early as 1990. The average of the 28 penalties was $10,496.

By comparison, federal regulators reported levying civil penalties in 29 cases against corporate oil spillers in Louisiana during the same years. The average federal fine was $148,335.

The U.S., which shares spill jurisdiction in the state, also undertook two criminal prosecutions, one resulting in a $13 million fine. The DEQ, which has jurisdiction that extends three miles out from Louisiana’s marshy coast and the shores of any state-claimed barrier islands, initiated none.

The DEQ says one reason for its lack of prosecutions is that few companies willfully spill crude oil. “Oil is a valuable product,” said Rodney Mallett, DEQ press secretary. “Rarely will someone knowingly or deliberately discharge oil.”

Spills can also include oilfield wastes and “produced water,” ancient seawater that comes to the surface with oil and gas as a toxic, concentrated brine carrying heavy metals and traces of radioactive material. Dumping it is illegal.

In the largest federal criminal case, Citgo Petroleum Corp. was fined $13 million after pleading guilty in September 2008 to a misdemeanor violation of the federal Clean Water Act. Storm water tanks at the company’s refinery in Sulphur overflowed during a rainstorm in June 2006, spilling about 53,000 barrels of oil into two rivers, the U.S. Department of Justice said in a news release.

The state joined the federal government in 2008 in an ongoing suit seeking civil penalties against the company over the same spill. Fernando Garay, a spokesman for Citgo, declined to comment.

In Louisiana, most discharges occur in the coastal zone, which serves as a globally important migratory bird stopover and provides the spawning grounds that sustain a $2.4 billion-a-year commercial fishing industry. The state has lost more than 1,800 square miles of these marshes to erosion since the 1930s, a third of the original total. On an annual basis, Louisiana accounts for 80 percent of the nation’s coastal wetlands losses, according to a task force of state and federal agencies that includes the U.S. Army Corps of Engineers and the EPA.

Over the past decade, Louisiana ranked second behind Texas with 223 “significant” pipeline spills — those that damaged property or the environment or killed wildlife or people — according to a 2010 study by the Arlington, Va.-based National Wildlife Federation. The report, published after the BP explosion, listed Louisiana among the nation’s “sacrifice zones” that have suffered heavy pollution as a tradeoff for energy development.

The blowout that led the state to pursue millions of dollars in fines and damages against BP, Transocean Ltd. and Triton Asset Leasing killed 11 workers and resulted in the dumping of 4.9 million barrels of oil. The spill soiled 337 miles of Louisiana coastline, shutting down commercial fishing in places. It dwarfed the estimated 190,000 barrels discharged in 2005 as a result of Hurricane Katrina and the 260,000 spilled in the 1989 wreck of the Exxon Valdez tanker in Alaska.

Daren Beaudo, a spokesman for BP America in Houston, declined to comment. Lou Colasuonno, a New York-based spokesman for Triton and Transocean, also declined to comment.

Policing spills from the state’s oil production and pipeline system, which transports almost 40 percent of America’s energy supplies, is only part of the DEQ’s mission. The agency, which spent $153 million in 2010, brings hundreds of cases a year against leaky underground storage tanks. It also shuts illegal waste dumps and fines air polluters, including oil and gas refineries.

Losco, which works on spill mitigation, has no authority to assess penalties. It prefers a “cooperative approach,” said David Gisclair, director of the agency’s technical assistance program. The agency said it has completed 10 of 23 cases it has undertaken since 1991.

“Big fines don’t work,” Gisclair said. “The oil companies just fight them in court and tie you up for years.”

Thirteen spills were reported since 2002 at various facilities of Hilcorp Energy Co., Louisiana’s largest oil producer in 2009. Eleven of them came from small pipes known as flowlines, according to DEQ data. The data show the state agency hasn’t imposed a spill fine that stuck against the Houston-based independent oil company.

The largest incident, in December 2002, totaled 1,000 barrels. It created what state enforcement documents called a “dead zone” in 7 acres of cypress forest in the Atchafalaya Basin about 130 miles west of New Orleans.

While Hilcorp faced a penalty of as much as $32,500, it wasn’t fined, the records show. The company spent $2 million cleaning up the spill, reimbursed Louisiana $75,000 for the cost of assessing the environmental damage and last year agreed to restore a nearby section of swamp, according to Losco. Hilcorp also promised “a new aggressive flowline management program to prevent future flowline leaks,” according to a 2003 company letter to state regulators.

The 12 other spills included three in an 11-day stretch in March 2006. Two of them involved less than a barrel and none exceeded 50 barrels. The DEQ moved to fine the company $1,000 for a September 2003 spill and $1,000 for another in September 2004, both of them for “unauthorized discharge of oilfield wastes,” DEQ documents say. The state rescinded both penalties in 2010.

In the 2003 case, the DEQ ruled that a Hilcorp contractor had caused the spill. In the 2004 incident, the Louisiana State Police had also fined Hilcorp $1,000 for failing to promptly report a spill of hazardous material.

“It’s our policy not to fine companies twice,” said Celena Cage, the DEQ’s administrator for enforcement.

Hilcorp didn’t respond to more than a half-dozen phone messages left at the office of Michael Schoch, whom the company identified as its regulatory, environmental and safety manager in a 2006 letter to the state. In 2009, state data show the company produced 7.9 million barrels of oil in Louisiana worth $490 million at the year’s average crude price of $61.99 a barrel.

Oil and gas companies’ political influence undermines regulatory efforts, said Foster Campbell, a former Democratic state senator who tried unsuccessfully to pass an oil transfer tax to replace the state’s 1920s-era severance tax. The industry employs 50,000 people. The state general fund’s receipts from oil and gas severance taxes, royalties and fees totaled $1.3 billion last year, about 15 percent of revenue. That’s down from a peak of $1.6 billion in 1982, when oil and gas receipts accounted for 42 percent of the state’s revenue.

“Our record of regulating oil and gas is dismal,” says Campbell, now a member of the Louisiana Public Service Commission. “Down here, nobody wants to punish anybody.”

From 1982 to 1997, Kerry St. Pe recommended fines in “hundreds and hundreds of cases” as a DEQ inspector in southeastern Louisiana, he says.

“But in terms of actual penalties that were levied based on my investigations, I can count them on one hand,” said St. Pe, 60, a marine biologist who now heads the Barataria-Terrebonne National Estuary Program in southeastern Louisiana. He said the main reason was “political pressure to the contrary,” which he described as a sense that vigorous enforcement in the field was being discouraged in Baton Rouge.

“When oil companies see it’s cheaper to pollute than to prevent spills, it creates a culture of noncompliance,” St. Pe said. The DEQ won’t respond to St. Pe’s comments, said Tim Beckstrom, a spokesman for the agency.

The regulator’s field agents today have no more effect in imposing fines than St. Pe did, according to a person with long, direct knowledge of the current DEQ inspection system who declined to be identified because his employer didn’t authorize the comments. The person said spill cases sent to DEQ headquarters can languish for years without action.

State field agents, frustrated by inaction from their supervisors, sometimes tip off federal regulators about incidents, the person said.

Decisions about fines are governed by a DEQ “matrix” that takes into account size and impact of the spill, the company’s culpability, how quickly the discharge was cleaned up and how cooperative the company was in addressing issues, the DEQ’s Cage says.

The agency declined to discuss how this system applied to Hilcorp, the company with 13 spills and no fines. In a letter resisting penalties for four of the spills in 2006, the company reminded the DEQ of its 2002 pledge to manage its flowlines to prevent leaks. The company also noted its more than 60 oil and gas sites in Louisiana.

“It’s imperative that Hilcorp and all regulatory agencies continue to have a strong working relationship,” the company said in the letter.

Getting firm numbers for Louisiana’s spills and the penalties assessed for them is complicated by flaws in the DEQ’s own database. The agency supplied it with an unsigned note saying, “The more current the document the more accurate the information.”

Fines are levied, then rescinded years later, the records show. Some spills are missing entirely from the online quarterly enforcement reports the DEQ publishes because the federal government took the lead in an investigation while the state played a supporting role.

In addition, the online database doesn’t permit simple computer searches — say, for “oil spills” — aimed at finding information on origins, size, responsible parties or causes.

Spill data from January 2006 through the third quarter of 2010 — the most recent timeframe available — was examined. The tally focuses on actual spill-related enforcement. The DEQ also fined eight companies an average of $825 during the period for failing to have spill containment reports on file. These weren’t tied to specific spills.

State regulators’ largest penalty was $153,177, levied against Murphy Oil USA Inc., a unit of Murphy Oil Corp., which is based in El Dorado, Ark. That 2010 settlement covered a series of mostly chemical spills and record-keeping violations beginning in 2001. Another penalty, $55,000, resulted from the 2009 settlement of a case that began in 1991. Leaving those cases aside, the average penalty for oil spillers since 2006 was $3,297.

By contrast, in June, regulators fined Dam Nguyen, the owner of the West Gate Quick Shop gasoline and food mart in Opelousas $8,885.29 for underground storage tank violations. Even though his three tanks weren’t leaking, Nguyen persistently failed to monitor them for possible leaks, the agency found.

Nguyen appealed the fine, characterizing himself as an overworked small business owner and saying that the employee who kept the monitoring records quit and took them with her. Based on that appeal, the state in November reduced the fine to $550, which Nguyen says he paid. He has enrolled in a DEQ class to help prevent future run-ins with the agency, he said.

In all, the agency cited 74 underground storage tank violations in the first nine months of last year, at an average fine of $1,202, state data show.

One form of DEQ enforcement actions, administrative settlements, can take years to resolve, based on state data.

In 1991, the DEQ proposed a $110,000 penalty for Opal Oil Inc. Among other things, the agency cited oil spills on land and into nearby streams in 1990 at facilities in the Ora Oil Field near Monroe. In one case, a broken pipeline spilled into a creek and the company “failed to report the release,” state records show.

An administrative law judge reduced the penalty to $103,100 in 1992. Still, Opal Oil paid nothing until 18 years after the first proposed penalty, when the company agreed to pay $55,000 in 18 monthly installments, DEQ records show.

Louisiana is “probably one of the strictest states” with regard to regulating oil drillers, said Bob Walker, a partner in Opal Oil. He said the initial fine was “unrealistic and unfair” and more than the company, which has four employees and operates only in Northern Louisiana, made at the time.

High-impact spills that kill wildlife or soil public beaches or marshes are handled by Losco, the separate agency, under a federally authorized process called a natural resources damage assessment, or NRDA. The DEQ doesn’t seek penalties in these cases, which can take years to complete.

In September, the state announced a $1.8 million damage and restoration assessment with Transcontinental Gas Pipeline Co., a unit of Tulsa-based Williams Partners LP. The NRDA resolved a 2001 spill of as much as 3,000 barrels of natural gas condensate in Mosquito Bay in Terrebonne Parish. Williams Partners didn’t respond to a request for comment made through the company’s press office.

NRDAs take so long because they involve complicated negotiations among the spiller and as many as a half-dozen state and federal agencies, Losco’s Gisclair says.

The lag time between spills and state decisions to levy fines or seek restitution can be years, a review of DEQ records found. An “expedited penalty agreement” in February 2010 with Texas Petroleum Investment Co., an independent Houston-based oil company, was for spills in May and June of 2006 and December 2007, according to DEQ data. The spills totaled 24 barrels of crude and at least four barrels of produced water at the company’s Delta Farms Field near Larose.

The DEQ collected $3,000 and a pledge from the company to “conduct more frequent visual inspections of transfer lines to prevent a reoccurrence,” according to state documents. The agency’s reports on the December 2007 incident cited pump malfunctions.

William Crawford, a co-owner of the company, declined to comment. Closely held Texas Petroleum was Louisiana’s eighth largest oil producer in 2009, pumping 1.7 million barrels of oil with a spot market value of $105 million.

The EPA can investigate spills independently and take the lead in federal waters within state boundaries or on spills that cross state boundaries, according to Stacy Kika, an EPA spokeswoman. The agency sometimes shares fines it collects with the states.

The EPA announced in August that Plains All American Pipeline LP, a publicly traded, Houston-based company, had agreed to pay a $3.25 million penalty for a series of discharges from 2004 to 2007. A total of 6,510 barrels of oil spilled into navigable waters of four states. Pat Diamond, a spokesman for the company, declined to comment. In 2006, the agency fined Stone Energy Corp., a Lafayette company, $150,722 and $28,875 for two flowline spills.

Stone Energy paid its fines, which were for onshore spills, said Flo Ziegler, a company spokeswoman.

St. Pe says he learned early in his DEQ career that it’s hard to alter a culture of noncompliance. A self-described “man of the marsh,” he grew up hunting and fishing the wetlands of Plaquemines Parish, the narrow neck of delta that ushers the Mississippi River on the final leg of its journey to the Gulf. It’s prime oil and gas country.

In 1980, St. Pe was investigating a tip that there were “acres and acres of dead swamp” near an oil and gas tank installation about 20 miles southwest of New Orleans, he says.

“I knew immediately they were discharging produced water in a fresh-water area,” he says. That’s illegal; drillers are required to pump the toxic brine back underground after separating it from the oil and gas.

As he began gathering samples, an employee of the oil company pulled up in a boat.

“Excuse me, sir, can you tell me what you’re doing here?” St. Pe says he asked the man. “He looked at me and actually grinned. He said, ‘Well, I guess you can tell what we’re doing — we’re getting rid of our produced water.'”

The man then explained the company would flout environmental laws because he knew the state wasn’t going to do anything meaningful to punish it.

“‘OK, you’ll write me up and you’re going to request penalties,'” St. Pe says the man told him. “‘And let’s just say they’ll actually fine us — what? $5,000 or $10,000? Do you know what it would cost to inject this produced water down a well? Millions of dollars.'”

Other oilfield workers over the years have blown the whistle when their employers broke pollution laws, St. Pe said. He says he doesn’t blame the companies.

“Corporations are like children,” he says. “If you allow your kids to have all the candy they want, you’ll get them fat and all keyed up on sugar. And when you then try to discipline them, you wonder why they won’t listen. It’s the same with these corporations.

“In Louisiana, they virtually get everything they ask for, so why should they behave?”

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
Cooper Law Firm

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