Washington (Platts)--3Dec2012/429 pm EST/2129 GMT

BP could lose US government fuel contracts worth nearly $1 billion as soon as January 30 if it doesn't resolve its Macondo well blowout-related suspension, government records show.

BP has two fuel contracts with the Defense Logistics Agency due to expire on January 30 -- one valued at $791 million and a second for $105 million. Both will go out for competitive bidding. And while BP will be allowed to bid on the contracts, the DLA cannot consider its offer or negotiate with the company while a suspension issued by the Environmental Protection Agency on November 28 is in place.

The two contracts are among 17 BP has to supply jet fuel, gasoline, diesel, natural gas and other fuels to the US military and Defense Department civilian agencies worth a total $2.3 billion, according to the Defense Logistics Agency. Contracts for fuel sales alone, not counting natural gas deals, amounts to about $1.5 billion, DLA records show.

Article continues below...

Request a free trial of: Oilgram News
	Oilgram News brings fast-breaking global petroleum and gas news to your desktop every day. Our extensive global network of correspondents report on supply and demand trends, corporate news, government actions, exploration, technology, and much more.

BP would be barred from bidding on those contracts under the suspension issued by the EPA in response to the company's agreement to plead guilty to manslaughter, violating the Clean Water Act and other charges in connection with the 2010 blowout of its Macondo well in the Gulf of Mexico.

In addition to the two contracts expiring in January, BP has another six contracts worth about $1.27 billion expiring over the course of 2013, DLA records show.

BP has expressed confidence that it will persuade the EPA to lift its suspension soon, but has not said whether it believes the matter will be resolved by the time its first US contracts expire. The company declined comment for this story and did not raise the topic during a meeting with analysts on December 3.

On November 28, BP said it had already submitted a "present responsibility" document of more than 100 pages, plus additional responses to questions the EPA had on the submission.

When a company is suspended from doing business with the US, it must prove it is "presently responsible" in order to be reinstated. The suspension and debarment law is not meant to punish a company for past behavior, but to protect the US in its procurement activities from fraud or dealings with unscrupulous suppliers.

"The EPA has informed BP that it is preparing a proposed administrative agreement that, if agreed upon, would effectively resolve and lift this temporary suspension," BP said at the time. "The EPA notified BP that such a draft agreement would be available soon."

If the US feels a company's integrity has been compromised, it can suspend it, which means it is prohibited from receiving any government contract, subcontract, loan, grant or participate in any assistance, for up to one year. A more serious penalty is debarment, which lasts longer, typically no more than three years.

The suspension applies to all new contracts, but does not affect existing deals.

"Suspensions are a standard practice when a responsibility question is raised by action in a criminal case," the EPA said November 28.

In addition to the government contracts at stake, BP could also be prevented from acquiring new offshore leases in the Central Gulf of Mexico sale scheduled for March 20. The US has said it will offer 38 million acres in the sale, which includes much sought-after deepwater tracts.

BP was not barred from bidding in the November 28 lease sale in the Western Gulf. But the Interior Department's Bureau of Ocean Energy Management said that the company would not be awarded any leases it won until it resolves its suspension. The company did not submit any bids in the sale and did not say why it skipped the event.

Two offshore trade groups, both of which count BP as a member, said that keeping the company from acquiring leases in March's Central Gulf sale could have a "hugely negative ripple effect on drilling contractors and the rest of the offshore industry as well as the Gulf region."

The National Ocean Industries Association and the International Association of Drilling Contractors noted that BP is the largest operator in the Gulf of Mexico, and its investments generate revenue for the federal government.

--Gary Gentile, gary_gentile@platts.com
--Edited by Richard Rubin, richard_rubin@platts.com

Tweet