BP Faces Ban from New Fed Deals

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BP Plc (BP) and its affiliated companies are now temporarily suspended from striking new contracts with the federal government until the company proves its operations are comparable to federal standards.

The U.S. Environmental Protection Agency (:EPA) barred the British oil giant from making fresh contracts with the federal government as BP was unable to demonstrate proper business integrity with regard to the 2010 Deepwater Horizon oil spill. The incident, a major environmental disaster in U.S. history, killed 11 workers and leaked 4.9 million barrels of oil into the Gulf over 87 days, polluting shores from Texas to Florida.

This restriction came a couple of weeks after BP made its largest ever criminal settlement with the federal authorities regarding the Macondo well oil spill. BP agreed to pay the U.S. Department of Justice $4 billion for criminal charges as well as agreed to pay the U.S. Securities and Exchange Commission $525 million to resolve securities claims.

The EPA clarified that the suspension is a normal practice when questions of responsibility are raised in a criminal case. It would not affect BP’s existing contracts with the government nor will it restrict the company from drilling operations on federal leases that it already has.

The U.K. energy giant still remains the largest investor and deepwater leaseholder in the Gulf region. It has more than 700 gross blocks and 7 rigs, which are currently in production. BP has been awarded 50 new leases in the Gulf of Mexico (GoM) region by the U.S. government since the oil spill mishap.

In general, EPA suspensions generally last not more than 18 months. However, the ban can also continue until relevant legal procedures are resolved. After BP receives its official notification of the suspension from EPA, it may appeal the decision within 30 days.

BP, UK's second largest oil company by market value after Royal Dutch Shell Plc (RDS.A), carries a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. We also maintain our long-term Neutral recommendation on the company.

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