How much will BP's suspension hurt?

The EPA's temporary ban on future contracts with the company could affect some operations, but will likely have little short-term impact.

By Bruce Kennedy Nov 29, 2012 9:51AM

Image: Oil Well Pumpjack -- Roger Milley/Vetta/Getty ImagesAre the recent federal actions leveled against BP (BP) a new warning to the oil giant and other corporations -- or simply a symbolic wrist-slap?

Wednesday, the U.S. Environmental Protection Agency announced it was temporarily suspending BP from new contracts with the federal government. 

According to the EPA's press release, the agency took this latest action "due to BP’s lack of business integrity as demonstrated by the company’s conduct with regard to the Deepwater Horizon blowout, explosion, oil spill, and response, as reflected by the filing of a criminal information."

Earlier this month, BP announced it would pay $4.5 billion in fines for its role in the deadly 2010 accident on its Deepwater Horizon drilling rig in the Gulf of Mexico. That oil rig explosion killed 11 workers and created one of the worst environmental disasters in U.S. history. The federal indictment also leveled criminal charges against the company and, in an unusual move, against a former BP vice president and two other employees.

For its part, BP notes the EPA's action "relates only to future potential contracts with the U.S. government. The temporary suspension does not affect any existing contracts the company has with the U.S. government, including those relating to current and ongoing drilling and production operations in the Gulf of Mexico."

But the suspension could potentially jeopardize BP's future oil operations in the Gulf -- as well as its ongoing, lucrative contracts with the U.S. military. And there's speculation the EPA action might also force BP to resolve numerous, oil spill-related civil lawsuits filed against it by a variety of states and businesses.

"BP had years to improve its business ethics and is paying the price for its inaction," said Scott Amey with the federal watchdog group Project on Government Oversight. Amey also believes the suspension is a warning to other federal contractors.

But other experts have their doubts. "If the suspension had affected existing contracts or had been announced as lasting a set minimum period of time (like one or two years), I think it could more readily be understood as a real additional penalty, rather than a largely symbolic gesture," said David Dana, a professor at Northwestern University and expert in environmental law.

As it currently stands, Dana says, the suspension is more a way for the government to underscore "the seriousness and importance of the criminal settlement and pending criminal charges against the individuals."

And in the meantime, analysts say the suspension will probably have little short-term impact on BP's current contracts and operations.

"BP's supply contract of fuels to the Pentagon might be at risk," Pavel Molchanov, an analyst with Raymond James & Associates, told Reuters. "But of course BP could supply other customers if this supply contract is not renewed."

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