BP and US Government Negotiations Analysis

Diplomacy, strategy and Decision Making: IPM112

Zacharia Dainkeh: 160070936

 An evaluation and critical analysis of the decision making process and the negotiations and agreement between BP and the US government including other relevant parties positions regarding the out of court settlement with respect to the Deepwater Horizon BP oil spill in the Gulf of Mexico in the United States of America

On the 20th of April 2010, the Golf of Mexico was rocked by an explosion from the Deepwater Horizon oil platform, and caused serious environmental and economic damage. In response BP provided a swift response to remedy the crisis by employing the services of Entrix, a renowned environmental consulting firm in the United States to evaluate the oil spill impact. Since Entrix is specialised in assessing crisis such as the impact such as the Deepwater Horizon oil spill. Even though the U. S. administration attempted to distance itself from British Petroleum in handling of the oil spill in the Gulf of Mexico,  the willingness for both parties to work together in assessing the nature and scope of the level of harm caused by oil spill, shows as a notable exception.

BP is a British owned MNC/oil company that leased the Deepwater Horizon rig, owned and operated by Transocean, an offshore drilling oil company. The Deepwater Horizon oil spill is as of yet the biggest environmental disaster to have rocked the United States in its history. That precipitated scores of negotiations to settle financial claims of the affected parties, immediately after BP had claimed responsibility. Taken together, the rulings meant that BP was on the hook for a fine of up to $13.7 billion under the Clean Water Act alone. Billions more could be levied from a federal Resource Natural Damage Assessment.

Following the 2010 catastrophic BP oil spill off the coast of New Orleans, in the Gulf of Mexico, which instantaneously led to a criminal investigation by the U.S Department of Justice? It would be recalled that this dreadful event induced a quagmire of complex legal proceedings against BP, Transocean and Anadarko for a violation of two Federal Acts of government. At the initial stage the path towards settlement was doubtful, after the September 2014 ruling, during which BP was held to be “grossly negligent” It was estimated that over 3.19 million barrels of oil was spilled from the disaster off the coastal areas of Southern United States in the Gulf of Mexico. the Clean Water and Oil Pollution respectively. By and large, the rationale of this paper will critically focus to unravel the complexity of the decision making and negotiating process(s) that eventually yielded a compensation settlement to those affected. Beach defines negotiations as actions aimed at helping the parties in a negotiation to overcome high transaction costs, enabling the achievement of mutually acceptable outcomes that would otherwise not be reached. (Beach, 2012).

It is the responsibility of senior management leaders to facilitate negotiations in times particularly in time of crisis, which is considered as part of a strategic management decision making process and shaping the agenda by determining relevant issues to be discussed. Before then, a risk assessment should have been done which will provide an advance warning of any unknown or known recommendation in preparation for the negotiating team of respective parties.

The first section seek to identify the relevant parties to the negotiated agreement between British Petroleum (BP) and the (U. S. Department of Justice (USDOJ), which includes relevant claimants and the purported parties responsible for the damaged and the two main dominant party of the final negotiations that derived from the Deep-water Horizon oil spill. This case study will proffer unravel how wide range of issues are addressed in the current literatures of oil spill devastations in relation to the negotiations process and application of the definition and relevant theory to this case study with a supporting argument to justify the dominant party position.

The second part of this paper an attempt to illustrate and describe alternative perspectives and approaches that could have been explore by other relevant parties to improved their bargaining outcome that may have reduce or prevent the scale of relative dominance observed as displayed in the decision making and negotiating process that eventually resulted to the structured settlement reached in this case.

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In the third and final section, the main focus will proffer to provide meaningful suggestions as to the method and approach in future scenario and advise based on the conclusive assessment and analysis of the negotiated parties, with respect to their decision making and negotiating process and its (their) outcome with the relevant lesson learnt based on the BP oil spill structured settlement.

Finally, a conclusion will closed this paper with reference drawn from the respective dominant parties, decision making process; lesson learned and proffer solution on lesson learned from the case study, followed by a summarized conclusion.

This  paper seek to evaluation and critically analyze the decision-making and negotiated agreement processes between the relevant affected parties with main focus on the two major parties; namely: (British Petroleum-BP), the responsible party for the damages and the relevant claimants main representative on the final negotiated agreement the United States Department of Justice. Furthermore, an analysis of the settlement stages and process towards the structured settlement will also be assessed. An evaluation of the strengths and weaknesses of the interconnected interest of MNC such as BP financial strength, investments, influence and association with the U.S economy and government socioeconomic, environmental and political interest with a need for a balance and an objective assessment that will unravel the true winners and losers of this negotiated agreement.

The parties to the agreement are from two separate angles, namely the claimants and responsible partie(s), the claimants are as follows: The United States of America Government represented by The U. U. Department of Justice (USDOJ were the main and dominant party that represented all claimants in the negotiations that concluded the structured settlement reached with BP), U. S. Coast Guard, Florida, Alabama, Louisiana, Mississippi, Texas, media, Oil Industry, Environmental activist and organizations, Fishermen, Tourist-driven Communities, Tourist Driven- Business, Tourists, Oil spill, Cleanup Workers and Home owners and developers. Whiles the responsible parties are British Petroleum (BP owner of the well), who happens to be the dominant responsible party, justification for the dominant parties will be explained later. BP was also the main party that negotiated as the responsible party with the USDOJ, and Transocean (owner and operator of the Deepwater Horizon), both of whom were named as the responsible parties by the U.S. Coast Guard.

For clarity purposes, it is important to understand that among the above mentioned parties the dominant parties in the out of court settlement were BP and the United States Government. This was so because BP owner of the well, with vicarious liability, is the main responsible party and the United States Government as a democratically elected government, for obvious reasons, it’s part of its responsibilities to not only represent the claimants, but to create a balance between the interest of the victims and the responsible party and to ensure that an appreciated deal is reached in the interest of the victims and the responsible party within an acceptable redress, but  are forced to take one side and be tough with BP to ensure that an adequate compensation is paid that commensurate to the damaged and loss caused. As the main representative of all claimants. It was believed that the government has the required expertise to accurately determine the financial means and compensate those that lost their jobs, property etc by reimbursing them with financial assistance from the responsible party,

 “If they pay the bills, they’re welcome at the table,” said Peter Tuttle, an environmental contaminant specialist with the U.S. Fish and Wildlife Service who is coordinating NRDA activities among Interior Department bureaus.”

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From a superficial glance, the ambition behind this legislation was to redress two major concerns: 1) unbearable delays and 2) fiercely problematic legal battles in subsequent oil spill catastrophes (see Issacharoff and Rave, 2014: 399).

The prevailing perspective of relevant actors were mixed as the process continued. To some, the entire agreement was very important especially on the part of BP and the United States government in getting the balance right in an attempt seek its national interest and to protecting its investors (MNC) and BP is keen in regaining back lost confidence from its investors and those residing in the affected areas. With such deal in place, BP was seen to have provided assurances to its current and potential investors that they are willing to sincerely honour their own part of any agreement reached in compensating those residing in the Gulf in case of any environmental harm done whilst they continue to carry out their activities within the Gulf Coast. Why not, some will hold this argument that the fact that BP was willing to stepped aside and allow the establishment of an Independent Claim Facility, it was an efficient move geared towards properly assessing claims and counter claims made by BP to an extent it was ascertained that BP doesn’t have what it takes to quantify or properly determined and estimate the damage claims as such responsibility doesn’t fall within its functions and was asked to refrained from the matter of surveying and working claims.

The Feinberg claims facility though at some point was deemed to have worked more than its’ predecessor, it also faced serious condemnation on its objectivity in handling the whole process as it was paid by BP and there was a possibility that it’s more committed to it employer. Criticisms were also made against Feinberg Law firm that the way it handled the process was too slow and marred with delays, tough and unfair in handing out monies. Both claims were denied by BP. Other actors said BP agreed for an out of court settlement because they want to settle the victims far less than what it would have cost them had the matter settle in court. They deliberately and cleverly agreed to allowed the court to monitored the compensation process creating an atmosphere in the minds of the victims that what they are doing is in line with whatever agreement they could have reached in court, but in reality, it was very clear that BP with its financial might, was just too smart and powerful with its negotiating team for the Golf Oil Spilled victims as the out of court settlement seriously cut down their financial responsibility to the victims. Surprisingly they used the same court they refused to go to monitor the process.

Whatever the outcome was, the fact is that, it was always going to be very difficult in determining oil spill disasters against these multi billions oil companies if laid down rules and regulations aren’t put in place that can stand the test of times. For instance, the International Tankers Owners Pollution Federation states: ” the tendency to react to political, media public perception and pressures rather than basing decisions on technical realities, is a special problem that can also escalate the cost of any incident beyond what would be considered ‘reasonable’ under the International Compensation Convention”( ITOPF). This is a terrifying one sided analysis with a sense to purely exonerate oil companies that they are often treated unfairly by he mentioned parties during oil spill disasters.

Taking these words in to serious consideration one would be tempted to ask whether BP compensation was commensurate to their purported damaged caused in the Deepwater Horizon oil spill in the Guif of Mexico? As there is no laid down straight formula to determine such payments according to the International Tankers Owners Pollution Federation. With incidents and circumstances of oil spill changes from one to another and in most cases depends on close factors say for instance the type of oil, the location of the spill and characteristics of the affected area as well as the effectiveness of the preventive measures and genuine commitment of the management, we shall continue to face problems, if well established rules aren’t put in place to asses oil spills.

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The oils and gas industry’s was and is said to made significant moves in developing advance technological ideas relating to the extraction of oil in the Deepwater Horizon, but make no mistake, their ideas doesn’t stand the test of times. And in terms of developing robust pre-emptive measures to tackle potential oil spills and hold oil companies objectively responsible for potential reckless actions, there is more than meet the eye with the current pre-emptive measures. Whilst some analysts would agree that the $ 500 million from fines and penalties from BP and Transocean’s meant to improve precautionary measures through well research based materials with development in education and training was a brilliant move; it’s also true that large cooperation the likes of BP have well experienced total legal practitioners whose main focus is to always look for loopholes within the ambit of the established laws to minimise financial effect of the company. Currently, laws and policies within the loss of multibillion companies for any potential reckless actions against society and people residing in their areas of operations needs reforms to block the use of escape routes in mitigating liability irrespective of political influence.

It is imperative that to flesh up my argument by looking at the current liability rule for civilian nuclear power with respect to the Anderson Nuclear Industries Indemnity, which clearly shows the important disparities between the Price Anderson Act’s and what the Administration considered supporting in their 2010 discussions with Congressional Staff. From those discussions, it was established that the Price Andersen value total damaged loss at about $ 12 billion in 2011, which was later assumed by analysts may not be sufficient to address future financial damage of any nuclear incident and is also lacking the required precautionary measures. The said Act is also considered to be unfriendly in tackling potential spill situations as it failed to efficiently address the regular payment of premiums for insurance nuclear power plants activities as it only pay in to compensation funds when disaster occur at a nuclear power plant facility and in such situations, such monies exceed the initial $ 375 million stated operator damage responsibility fees.

It’s also very important to lay down very clear quality rules and regulations with the clean understanding to check and confirm that the well genuine established preventive measures are correctly adhere to for firms operating in the insurance scheme. With the seldom oil spills, there’s a lack of well reliable information to reference in appropriately and fairly determining potential premium for disaster victims. With this in mind, there should be an independent body with continuous free access to check and determine high level of safety with punitive measures for firms that fails to efficiently adhere to the agreed standard rules of operation. The need for sharing information of defaulters in public is also necessary as it will raise genuine concerns within company’s shareholders, in the first instance, they will learn about the poor way administration is protecting the credibility of their company. This will move genuine investors to question whether company administrators are genuine enough to operate within the agreed standard laid down rules as part of it operations commitment in the Deep water Horizon.

In conclusion, agreed parties can base their strength in the knowledge of the industries and it expertise to form the industry rules and regulations; whilst the government could ask for joint experience guarantee safety as a requirement for any firm to demand authorisation act of boring a hole in the Deepwater Horizon.

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(275 words)