Deepwater Horizon Oil Spill: Update on Federal Financial Risks and Claims Processing

On April 20, 2010, an explosion occurred on BP America Production Company's (BP) leased mobile offshore drilling unit Deepwater Horizon. The total cost to clean up the massive and unprecedented oil spill in the Gulf of Mexico following the Deepwater Horizon explosion (including costs to help pay for the spill's adverse impact on businesses and individuals in the region) are yet unknown, but have been estimated in the tens of billions of dollars. The extent to which the federal government will ultimately be required to pay costs associated with the Deepwater Horizon oil spill remains unclear. The complex legal framework in place for oil spill liability and response funding will play an integral role in determining who is responsible and will ultimately pay the costs associated with the Deepwater Horizon oil spill. In this regard, the Oil Pollution Act of 1990, as amended (OPA), which Congress enacted after the Exxon Valdez spill in 1989, authorized use of the Oil Spill Liability Trust Fund (Fund) to pay for certain oil spill cleanup costs and damages using federal tax revenues for immediate response costs and when the responsible parties cannot be identified or do not pay. OPA also provided that the federal government may subsequently seek reimbursement for these costs from responsible parties. The Fund, which is administered by Coast Guard's National Pollution Funds Center (NPFC), is subject to a $1-billion cap on the total amount of expenditures per incident. NPFC designated two BP subsidiaries--BP Exploration and Production and its guarantor, BP Corporation North America, Inc.--and five other companies as responsible parties for Deepwater Horizon oil spill related claims. Shortly after the spill, at the direction of NPFC, BP began to receive and process all claims against responsible parties. In June 2010, at the urging of the White House and Department of Justice, BP established a new claims processing facility--the Gulf Coast Claims Facility (GCCF). GCCF began operations on August 23, 2010, and is responsible for handling claims from individuals and businesses for damages resulting from the Deepwater Horizon oil spill. For those claims submitted to the GCCF that are rejected or not paid within 90 days, claimants may file OPA-compensable claims with NPFC to request reimbursement from the Fund. BP also established an irrevocable trust (Trust), to which BP is to provide a total of $20 billion by 2014, primarily for the purpose of paying GCCF and other claims related to the Deepwater Horizon oil spill. The Trust is to pay some OPA-compensable claims and some other. claims for personal injuries that are not OPA-compensable, but for which BP would be liable under other federal or state laws, such as the Jones Act or state oil pollution acts. In November 2010, we reported on our preliminary assessment of the potential financial risks to the federal government associated with the Deepwater Horizon oil spill cleanup costs. The attached briefing provides information updated since our preliminary assessment. For this briefing our objectives are to provide updated information on (1) the financial risks to the federal government associated with the cap on expenditures from the Fund and (2) claims submitted to and reviewed NPFC and GCCF, and those paid by GCCF. We also provide an update of the status of agency actions to respond to the recommendations made in our November 2010 report. This is the second in a planned series of three reports on our work in this area. Our third report, planned for the summer of 2011, is intended to be a capping report with an updated assessment of: (1) the financial risks to the federal government associated with the Fund; (2) NPFC Fund cost reimbursements and claims and related processes; and (3) the federal framework for monitoring and oversight of responsible parties' actions to pay costs associated with the Deepwater Horizon oil spill..