Thursday, December 2, 2021

Will those responsible for the OC oil spill pay for the damage?

Six years ago, an oil pipeline ruptured in Santa Barbara County poured 140,000 gallons of crude onto the sands of Refujio State Beach.

The company that owned the pipeline weathered the loss of profits and subsequent lawsuits, but the offshore producer that used the pipeline to transport its oil did not. After two attempts at Chapter 11 bankruptcy protection, Venoco Inc. eventually abandoned drilling in Southern California, leaving the state to deal with the millions of dollars worth of shut-in wells.

Patriot Environmental Services workers clean up oil that entered Talbert Marsh in Huntington Beach on October 3 following a spill off the coast of Orange County.

(Myung J. Jung / Los Angeles Times) #

Some experts believe this month’s spill off the coast of Orange County, which dumped about 25,000 gallons into the ocean, could be a costly repeat of the Refugio spill. The firm, which operates the San Pedro Bay pipeline, is facing intense pressure from federal regulators and businesses and residents to sue over the aftermath of the spill.

Filing for bankruptcy protection, as Venoco did, could be an attractive option for the pipeline’s parent company, giving it temporary relief from financial and legal pressures. But it is too early to say whether Amplify Energy Corp. to this step. Its oil production is less dependent on California than Venoco, but it is also a relatively small player in an industry where the financial blow from an environmental disaster can be devastating.

“They can easily throw up their hands and file for bankruptcy,” said longtime analyst and energy markets advisor Stephen Shork.

Amplify Energy and its subsidiaries are not considering Chapter 11 bankruptcy “at this time,” instead focusing on environmental clean-up and working with regulators investigating the spill, said Amy Conway, a spokeswoman for the company.

As US oil production declined, the larger energy companies turned their attention to deepwater drilling, where huge reserves – and profits – remain untapped. The firms sold their aging shallow-water platforms and pipelines to smaller players who were struggling with falling oil prices. The threat of Chapter 11 bankruptcy among these companies skyrocketed during the pandemic.

Oil and gas platforms Edith (left to right), Ellie, Ellen off the coast of Southern California.

Oil and gas platforms Edith (left to right), Ellie and Ellen off the coast of Southern California October 18.

(Allen J. Chaben / Los Angeles Times) #

Whether Amplify Energy ultimately decides to seek bankruptcy protection depends on several factors, including the terms of the company’s insurance coverage and whether the shipping company operating the vessel that may have initially damaged the pipeline with its anchor is identified and held accountable. …

Investigators plan to cut the San Pedro Bay pipeline and transport the ruptured section to a lab for analysis, damaging the company’s drilling operations in California. The duration of the pipeline closure will be another important factor for the company, which, according to recent financial statements, receives about 14% of its total energy production from its California offshore operations.

After the Santa Barbara oil spill, Venoco ceased operations after the state refused to turn on the pipeline, cutting off half of the offshore company’s revenues. The state also refused to allow the company to use tankers to transport oil to shore.

Richard Carson, a professor of economics at the University of California, San Diego, was one of the main economic researchers assessing the damage from the Deepwater Horizon and Exxon Valdez spills. Contrary to the views of some observers, he said that if the federal government believes that Amplify Energy is ultimately the responsible party, he does not believe the company will be able to avoid financial responsibility for the spill by filing for bankruptcy or transferring responsibility to subsidiaries.

“It would be really difficult to get a federal lease for oil off the coast of California and set it up in such a way as to prohibit state and federal restitution from making the public a unified community,” Carson said.

Amplify Energy announced this month in a public announcement in several local newspapers that the firm could be held liable for the costs of cleaning up the spills and damages. The notice required by the 1990 Federal Oil Pollution Act states that claims that may be reimbursed include damage to natural resources, damage or loss of personal property, and loss of profits and income opportunities.

Lining the Huntington State Beach oil spills

A man sees oil streaks in the sand after a major oil spill washed ashore in Huntington State Beach earlier this month.

(Allen J. Chaben / Los Angeles Times) #

Claims that are denied or not resolved within three months can be submitted to the National Pollution Control Center for payment from the Oil Spill Responsibility Trust Fund, the company said in a notice. The fund, administered by the Coast Guard, is funded by a tax per barrel of crude oil.

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Federal law requires oil companies to leave $ 35 million for oil spills of this size.

Since 2016, US regulators have sought to tighten liability and decommissioning rules for offshore drillers, especially in the Gulf of Mexico, where most of the US offshore drilling takes place, fearing that taxpayers will be forced to pay to shut down idle oil platforms if smaller players closed under financial pressure, ”said Tyler Priest, an associate professor at the University of Iowa who studies the history of oil and gas drilling.

But this move to raise bond and insurance requirements, pioneered during the Obama administration, has met with heavy industry rebuff. The rule was “abolished” under the Trump administration, Priest said, and remains unfinished despite the progress made by the Biden administration.

It is unclear how many insurance policies Amplify Energy had at the time of the spill, but experts say it is unlikely that policies could pay for each claim.

The backlog of lawsuits “could be a significant factor” in potential bankruptcy, said Lexi Hazam, a San Francisco-based lawyer representing a group of plaintiffs that includes commercial anglers and a whale watching company.

Legal complaints have already reached double digits, including complaints from coastal property owners in Laguna Beach, a surf school in Huntington Beach, lure and tackle shop Seal Beach, and several fishing and seafood groups.

Experts say that if Amplify Energy files for bankruptcy, there is a good chance that the plaintiffs will not receive the compensation they hoped for. Bankruptcy judges set the amount of potential damages companies can pay in Chapter 11, and even the federal government cannot force a company to pay more than that amount, said Eric Smith, professor of business at Tulane University and assistant professor. Director of the Tulane Energy Institute.

“You can bankrupt a company, but there is little you can do to get full compensation,” Smith said.

According to Khazam, potential bankruptcy will not mean the end of the litigation, but will lead to “a different type of process, and obviously it includes a limit on the amounts that can be recovered.”

How much Amplify Energy ultimately pays may also depend on how well the company has successfully isolated the risk of oil spills from its subsidiaries, its complex network of limited liability companies and corporations.

Amplify Energy’s subsidiary Beta Operating Co. operates oil rigs off the coast of Orange County. Another, San Pedro Bay Pipeline Co., is responsible for the pipeline rupture.

If smaller businesses were held solely responsible for the spill, and prosecutors and plaintiffs could not place the blame for the pipeline spill back on Amplify Energy, then the company could free up the subsidiaries, allow them to fail, and avoid a direct financial blow inherently. business, some experts say.

“You can leave your subsidiary free,” said Ted Borrego, an oil and gas lawyer with fifty years of industry experience and an associate professor at the University of Houston Law Center.

Amplify Energy is a relatively small firm whose balance sheet pales in comparison to the large international oil corporations. In recent years, management has followed a corporate strategy that left the company running low on cash when the spill occurred.

A review of Amplify Energy’s financial performance in recent years shows that executives have long focused on cutting costs, buying back shares and paying dividends to shareholders in the millions of dollars, rather than maintaining a sizable cash reserve.

Amplify Energy itself emerged from bankruptcy. Its corporate predecessor restructured four years ago, paying off $ 1.3 billion in debt. The new firm became more compact and had relatively little cash.

When the pandemic broke and oil prices fell, Amplify Energy said it had cut costs by 37%. The subsidiary also received a $ 5.5 million loan under the Payroll Protection Program, which was subsequently forgiven, to cover payroll costs for 292 employees.

In July, Amplify Energy had $ 235 million in debt and $ 21 million in cash, far less than the expected cleanup cost and any legal damages.

Similar to the Santa Barbara spill, which is still pending litigation, the Orange County disaster will be litigated for years to come – and will likely incur costs in the meantime.

Nation World News Desk
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