ANALYSIS: US contract halt for BP could cost company $1 billion by end-January
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.
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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
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
"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
"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
--Gary Gentile, firstname.lastname@example.org
--Edited by Richard Rubin, email@example.com