LEGAL CONSEQUENCES OF

MAJOR OIL SPILLS

by

OBOZUWA ENIKE DOMINIC

Associate

Wali-Uwais & Co. Barristers, Solicitors & Notary Public

Right Wing, 1st Floor, Afri-Investment House Plot 2669 (#50) Aguiyi Ironsi Street, Maitama, Abuja

P. M. B. 5049, Garki, Abuja, FCT – Nigeria +2348033800027

2

LEGAL CONSEQUENCES OF MAJOR OIL SPILLS

Written by

OBOZUWA ENIKE DOMINIC

Associate

Wali-Uwais & Co.

Barristers, Solicitors & Notary Public

Right Wing, 1st Floor, Afri-Investment House

Plot 2669 (#50) Aguiyi Ironsi Street, Maitama, Abuja

P. M. B. 5049, Garki, Abuja, FCT – Nigeria

+2348033800027

April 2012.

3

TABLE OF CONTENTS

1. ABSTRACT

2. INTRODUCTION – OIL SPILL

- OIL SPILL POLLUTION AND ITS EFFECTS

3. MAJOR GLOBAL OIL SPILLS: A SYNOPSIS

- EXXON VALDEZ

- BP: DEEP WATER HORIZON SPILL IN THE GULF OF MEXICO

- PRESTIGE OIL SPILL

- NIGERIA: OIL SPILLS IN THE NIGER-DELTA

4. LEGAL ASPECTS AND CONSEQUENCES OF MAJOR OIL SPILLS

5. CONCLUSION & RECOMMENDATIONS

4

TABLE OF STATUTES

1. The Oil Pollution Act (OPA) 1990

2. The Clean Water Act (CWA) 1972

3. The Refuse Act (1899)

4. The US Endangered Species Act (1973)

5. The Migration Bird Treaty Act 1918

6. The International Convention on Civil Liability for Oil Pollution Damage (CLC)

7. The Nigerian Petroleum Act 1969

8. The Endangered Species Decree Cap 108 LFN1 1990.

9. Federal Environmental protection Agency Act Cap 131 LFN 1990.

10. Harmful Waste Act Cap 165 LFN 1990.

11. Petroleum (Drilling and Production) Regulations, 1969.

12. Mineral Oil (Safety) Regulations Act, 1963.

13. International Convention on the Establishment of an International Fund for

Compensation for Oil Pollution Damage, 1971

14. Convention on the Prevention of Marine pollution Damage, 1972

15. African Convention on the Conservation of Nature and Natural Resources,1968

1 Laws of the Federation of Nigeria (LFN)

5

LEGAL CONSEQUENCES OF MAJOR OIL SPILLS

ABSTRACT

Oil pollution is a sensitive topic, which has gained importance recently due to crude oil

spills which has left devastating effects on local businesses and fishing industries globally,

led to a loss of huge sums of money and property and which in turn has led to many

recent international legal developments. This paper examines the legal consequences of

major oil spills as well as the effectiveness of relevant marine laws in imputing liability and

calculating damages for individuals, industries and also where more than one nation is

affected.

This paper examines complications of oil spillage, leading to damages to marine life, the

legal consequences and the subsequent action a nation needs to take, in response. The

damage caused has also to be judged along with the interests of the other affected

individuals, organisations, industries and nations. The author concludes by proposing

recommendations to take up the matter and award appropriate punishments and

financial implications to the defaulting party.

6

INTRODUCTION

Oil Spills

In analysing the subject, it is pertinent to review relevant definitions as they pertain to the

subject and therefore create a background to our understanding of the legal aspects

and resultant consequences of major oil spills in history. Oil spills general create a pollution

of marine life amongst

others and hence is

used interchangeably

with “Oil Pollution”.

Oil is one of the world's

main sources of energy,

but because it is

unevenly distributed it

must be transported by

ship across oceans and by pipelines across land. This results in accidents when transferring

oil to vessels, when transporting oil, and when pipelines break, as well as when drilling for

oil. While massive and catastrophic oil spills receive most of the attention, smaller and

chronic oil spills and seeps occur regularly. These spills contaminate coasts and estuaries,

and they can cause human health problems.

Oil is a mixture of hydrocarbon compounds, which are the decayed remains of marine

animals and plants that lived in shallow inland seas, died, and drifted to the bottom. For

the past 600 million years, under intense pressure and temperatures, these remains

7

changed into the complicated hydrocarbons called petroleum. Crude oil is a mixture of

gas, naphtha, kerosene, light gas, and residuals, which have different health effects.

Overall production of petroleum products rose from about 500 million tons in 1950 to over

2,500 million tons by the mid-1990s, resulting in massive transport and associated oil spills.

By far the greatest oil reserves are in the Middle East, and major transportation routes

emanate from there. The number of oil spills, both major and minor, has been increasing

with the increasing rate of oil transport and the aging of oil tankers, as well as an increase

in the size of oil tankers. Oil accounts for over half the tonnage of all sea cargo.

Since the 1960s there have been over twenty oil spills of more than 50 million gallons. Major

oil spills have occurred off the coast of Mexico, the Middle East, off South Africa, in the

North Pacific, and in Alaska, as well as in the pipeline in Usink, Russia and in Nigeria.

The largest spills do not necessarily receive the most media coverage, either because of

their location, the lack of human health or ecological effects, the lack of documentation

of these effects, or a lack of media interest. For example the 1980 Nowruz field spill in

Arabia (80 million gallons) and the 1992 Fergana Valley spill in Uzbekistan (80 million

gallons) barely received any attention. In contrast, two smaller spills received enormous

media attention: the oil tanker Amoco Cadiz released 68.7 million gallons off the coast of

France in 1978, and the tanker Exxon Valdez spilled 11 million gallons into Prince William

Sound in Alaska in 1989. The Deepwater Horizon spill according to the initial estimates that

were released before the live video feed was available to the public, oil was leaking from

the gulf floor at a released flow of about 4.9 million barrels (780,000 m3) of crude oil. An

estimated 53,000 barrels per day (8,400 m3/d) escaped from the well just before it was

capped. It is believed that the daily flow rate diminished over time, starting at about

8

62,000 barrels per day (9,900 m3/d) and decreasing as the reservoir of hydrocarbons

feeding the gusher was gradually depleted. Though the disaster occurred on April 20,

2010, it wasn’t until July 15, 2010 that the flow of oil was finally stopped.2.

Short-term public health impacts from oil spills include accidents suffered by those on

damaged tankers or those involved in the cleanup, and illnesses caused by toxic fumes or

by eating contaminated fish or shellfish. However, there are other less obvious public

health impacts, including losses and disruptions of commercial and recreational fisheries,

seaweed harvesting, boating, and a variety of other uses of affected water. There are

also emotional, aesthetic, and economic losses, such as when Native Americans and

others are denied subsistence or recreational uses. In both the case of the Exxon

Valdez and the Amoco Cadiz there were permanent changes to the social and cultural

communities residing in the region, which had permanent public health consequences,

including chronic psychological stress3.

Oil Spill Pollution and its Effects

An oil spill is the release of a liquid petroleum hydrocarbon into the environment,

especially marine areas, due to human activity, and is a form of pollution. The term is

mostly used to describe marine oil spills, where oil is released into the ocean or coastal

waters. Oil spills may be due to releases of crude oil from tankers, offshore

platforms, drilling rigs and wells, as well as spills of refined petroleum products (such

as gasoline, diesel) and their by-products, heavier fuels used by large ships such as bunker

fuel, or the spill of any oily refuse or waste oil. Another significant route by which oil enters

the marine environment is through natural oil seeps.

2 BP Oil Spill Lawyers – www.prweb.com/releases/2011/02 3 www.answers.com (excerpts from the Gale Encyclopedia of Public Health)

9

Beyond adverse environmental effects, oil spill effects also include loss of money and

property, as well as adverse industry effects; e. g. the damages caused to the fishing

industries in particular areas by virtue of a spill.

Oil spills can be controlled by chemical dispersion, combustion, mechanical containment,

and/or adsorption. Spills may take weeks, months or even years to clean up.

Environmental effects

Surf Scoter covered in oil as a result of the 2007 San Francisco Bay oil spill.

The oil penetrates into the structure of the plumage of birds and animals, reducing its

insulating ability, thus making the birds more vulnerable to temperature fluctuations and

much less buoyant in the water. It also impairs or disables birds' flight abilities to forage and

escape from predators. As they attempt to preen, birds typically ingest oil that covers their

feathers, causing kidney damage, altered liver function, and digestive tract irritation. This

and the limited foraging ability quickly cause dehydration and metabolic imbalances.

Hormonal balance alteration including changes in luteinizing protein can also result in

some birds exposed to petroleum. Most birds affected by an oil spill die unless there is

10

human intervention. Some studies have suggested that, even after cleaning, less than 1%

of oil soaked birds survive; though it can also exceed 90% as in the case of the Treasure oil

spill. Heavily furred marine mammals exposed to oil spills are affected in similar ways as

seabirds. Oil coats the fur of Sea otters and seals, reducing its insulation abilities and

leading to body temperature fluctuations and hypothermia. Ingestion of the oil causes

dehydration and impaired digestions. Oil may also cause the death of an animal by

entering the animal’s lungs or liver. The animal will then be poisoned by the oil. Oil also

can kill an animal by blinding it, and leaving it defenseless.

Because oil floats on top of water, less sunlight penetrates into the water, limiting

the photosynthesis of marine plants and phytoplankton. This, as well as decreasing the

fauna populations, affects the food chain in the ecosystem. There are three kinds of oil-

consuming bacteria. Sulfate-reducing bacteria (SRB) and acid-producing bacteria

are anaerobic, while general aerobic bacteria (GAB) are aerobic. These bacteria occur

naturally and will act to remove oil from an ecosystem, and their biomass will tend to

replace other populations in the food chain.

Cleanup and recovery

from an oil spill is difficult

and depends upon many

factors, including the type

of oil spilled, the

temperature of the water

(affecting evaporation and

biodegradation), and the

types of shorelines and beaches involved. Methods for cleaning up include:

11

Bioremediation, Bioremediation Accelerator, Controlled burning, Dispersants acting

as detergents, Watch and wait, Dredging, Skimming, Solidifying, Vacuum and centrifuge.4

MAJOR GLOBAL OIL SPILLS: A SYNOPSIS

This subhead examines common oil spills as well as the legal and commercial

consequences of same. We shall consider the Exxon-Valdez, Deep Water Horizon and

Bonga oil spills with particular emphasis on the 2010 BP Gulf of Mexico oil spill.

Exxon-Valdez oil Spill

The Exxon Valdez accident in Alaska in 1989 caused an ecological catastrophe of

unprecedented magnitude and long-term consequences of the oil spill have been

reported ever since. The synthesis of the oil

spill studies shows that today’s risk

assessment models to predict ecological

impacts of petroleum activity should also

include long-term effects of an accident.

Beginning three days after the vessel grounded, a storm pushed

large quantities of fresh oil on to the rocky shores of many of the beaches in the Knight Island chain. In this photograph, pooled oil is

shown stranded in the rocks.

The Exxon Valdez oil spill occurred in Prince William Sound, Alaska, on March 24, 1989,

when the Exxon Valdez, an oil tanker bound for Long Beach, California, struck Prince

William Sound's Bligh Reef and spilled 260,000 to 750,000 barrels (41,000 to 119,000 m3)

of crude oil. It is considered to be one of the most devastating human-

caused environmental disasters. The Valdez spill was the largest ever in U.S. waters until the

4 Wikipedia

12

2010 Deepwater Horizon oil spill, in terms of volume released. However, Prince William

Sound's remote location, accessible only by helicopter, plane, and boat, made

government and industry response efforts difficult and severely taxed existing plans for

response. The region is a habitat for salmon, sea otters, seals and seabirds.

According to official reports, the ship was carrying approximately 55 million US gallons

(210,000 m3) of oil, of which about 11 to 32 million US gallons (42,000 to 120,000 m3) were

spilled into the Prince William Sound. 5. The synthesis of 14 years of Exxon Valdez oil spill

studies documents the contributions of delayed, chronic and indirect effects of petroleum

contamination in the marine environment. With this knowledge, today’s risk assessment

models to predict ecological impacts of petroleum activity should not be limited to

selective short-term effects of oil spills and tests of acute toxicity in laboratory tolerant

taxonomic groups, but should also include long-term effects of an accident.6

Litigation consequences and clean up costs

In the case of Baker v. Exxon,

an Anchorage jury awarded $287 million

for actual damages and $5 billion

for punitive damages. The punitive

damages amount was equal to a single year's profit by Exxon at that time.7 To protect

itself in case the judgment was affirmed, Exxon obtained a $4.8 billion credit line from J.P.

Morgan & Co. J.P. Morgan created the first modern credit default swap in 1994, so that

5 The Lingering lessons of Exxon Valdez Spill, Marybeth Holleman (University of Utah Press). 6 Peterson et al. (2003) Long-term ecosystem response to the Exxon Valdez oil spill. Review in Science 302: 2082-2086 7 Eisenberg, T. 2001. Damage awards in perspective: behind the headline-grabbing awards in Exxon Valdez (In re Exxon Valdez, Nos. 97-35191, 97-35192, 97-35193, 97-35235, 2001 WL 1359852 (9th Cir. Nov.7, 2001)) and Engle (Engle v. R.J. Reynolds Tobacco Co., No. 94-8273 CA WL 33534572 (Fla. Cir. Ct. Nov. 6, 2000)).

13

Morgan's would not have to hold as much money in reserve (8% of the loan under Basel I)

against the risk of Exxon's default.8

Meanwhile, Exxon appealed the ruling, and the 9th U.S. Circuit Court of Appeals ordered

the original judge, Russel Holland, to reduce the punitive damages. On December 6, 2002,

the judge announced that he had reduced the damages to $4 billion, which he

concluded was justified by the facts of the case and was not grossly excessive. Exxon

appealed again and the case returned to court to be considered in light of a

recent Supreme Court ruling in a similar case, which caused Judge Holland to increase

the punitive damages to $4.5 billion, plus interest.9

After more appeals, and oral arguments heard by the 9th Circuit Court of Appeals on

January 27, 2006, the damages award was cut to $2.5 billion on December 22, 2006. The

court cited recent Supreme Court rulings relative to limits on punitive damages.10 Exxon

appealed again. On May 23, 2007, the 9th Circuit Court of Appeals denied ExxonMobil's

request for a third hearing and let stand its ruling that Exxon owes $2.5 billion in punitive

damages. Exxon then appealed to the Supreme Court, which agreed to hear the

case.11 On February 27, 2008, the Supreme Court heard oral arguments for 90

minutes. Justice Samuel Alito, who at the time, owned between $100,000 and $250,000 in

Exxon stock, recused himself from the case12. In a decision issued June 25, 2008,

Justice David Souter issued the judgment of the court, vacating the $2.5 billion award and

8 Adler, R.W. and C. Lord. 1991. Environmental crimes: raising the stakes. The George Washington Law Review, 59(4): 781-861. 9 Another slip-up for Exxon: Judge R. Holland's rejection of Exxon Valdez spill settlement. The Economist, 1991, 319 (April): 72. 10 Bardick, D. S. 2000. The American tort system's response to environmental disaster: the Exxon Valdez oil spill as a case study. Stanford Environmental Law Journal, 19(1): 259-289. 11 Dolin, M.F. 1997. An overview of the Exxon Valdez insurance coverage dispute. International Insurance Law Review, 5(10): 313-317. 12 Wake Forest Law Review, 36(4): 1129-1155.

14

remanding the case back to a lower court, finding that the damages were excessive with

respect to maritime common law. Exxon's actions were deemed "worse than negligent

but less than malicious." The judgment limits punitive damages to the compensatory

damages, which for this case were calculated as $507.5 million. Some lawmakers, such

as Senate Judiciary Committee Chairman Patrick J. Leahy, have decried the ruling as

"another in a line of cases where this Supreme Court has misconstrued congressional intent

to benefit large corporations.13

Exxon's official position is that punitive damages greater than $25 million are not justified

because the spill

resulted from an

accident, and

because Exxon spent

an estimated

$2 billion cleaning up

the spill and a further

$1 billion to settle

related civil and criminal charges. Attorneys for the plaintiffs contended that Exxon bore

responsibility for the accident because the company "put a drunk in charge of a tanker in

Prince William Sound."

Exxon recovered a significant portion of clean-up and legal expenses through insurance

claims associated with the grounding of the Exxon Valdez. Also, in 1991, Exxon made a

quiet, separate financial settlement of damages with a group of seafood producers

13 Booth, R.A. 1994. Stop the misuse of punitive awards. Editorial. New York Times (Late New York Edition), (December 25): 7 (Section 3).

15

known as the Seattle Seven for the disaster's effect on the Alaskan seafood industry. The

agreement granted $63.75 million to the Seattle Seven, but stipulated that the seafood

companies would have to repay almost all of any punitive damages awarded in other

civil proceedings. The $5 billion in punitive damages was awarded later, and the Seattle

Seven's share could have been as high as $750 million if the damages award had held.

Other plaintiffs have objected to this secret arrangement, and when it came to light,

Judge Holland ruled that Exxon should have told the jury at the start that an agreement

had already been made, so the jury would know exactly how much Exxon would have to

pay.14

Consequential Reforms15

- Coast Guard report: A report by the US National Response Team summarized

the event and made a number of recommendations, such as changes to the

work patterns of Exxon crew in order to address the causes of the accident.

- Oil Pollution Act of 1990: In response to the spill, the United States

Congress passed the Oil Pollution Act of 1990 (OPA). The legislation included a

clause that prohibits any vessel that, after March 22, 1989, has caused an oil spill

of more than 1 million US gallons (3,800 m3) in any marine area, from operating

in Prince William Sound. In April 1998, the company argued in a legal action

against the Federal government that the ship should be allowed back into

Alaskan waters. Exxon claimed OPA was effectively a bill of attainder, a

regulation that was unfairly directed at Exxon alone. In 2002, the 9th Circuit

14 Corporate liability: unExxonerated. The Economist, 1994, 331(June 18): 32. 15 Legal Battles Over Oil Spill Could Foul Research On Health Effects by RICHARD KNOX, 2010

16

Court of Appeals ruled against Exxon. As of 2002, OPA had prevented 18 ships

from entering Prince William Sound.

OPA also set a schedule for the gradual phase in of a double hull design,

providing an additional layer between the oil tanks and the ocean. While a

double hull would likely not have prevented the Valdez disaster, a Coast Guard

study estimated that it would have cut the amount of oil spilled by 60 percent.

- Alaska regulations: In the aftermath of the spill, Alaska governor Steve

Cowper issued an executive order requiring two tugboats to escort every

loaded tanker from Valdez out through Prince William Sound to Hinchinbrook

Entrance. As the plan evolved in the 1990s, one of the two routine tugboats was

replaced with a 210-foot (64 m) Escort Response Vehicle (ERV). The majority of

tankers at Valdez are no longer single-hulled, Congress has enacted legislation

requiring all tankers to be double-hulled by 2015.

- Opposition to oil drilling: The Oil, Chemical and Atomic Workers International

Union, representing approximately 40,000 US workers, announced opposition to

drilling in the Arctic National Wildlife Refuge (ANWR) until Congress enacted a

comprehensive national energy policy.

17

The Deepwater Horizon Oil Spill16

The Deepwater Horizon oil spill (also referred to as the BP oil spill, the Gulf of Mexico oil spill,

the BP oil disaster, or the Macondo blowout) is an oil spill in the Gulf of Mexico which

flowed unabated for three months in 2010.

The spill stemmed from a sea-floor oil gusher that resulted from the April 20, 2010, explosion

of Deepwater Horizon, which drilled on the BP-operated Macondo Prospect. The explosion

killed 11 men working on the platform and injured 17 others. On July 15, 2010, the leak was

stopped by capping the gushing wellhead, after it had released about 4.9 million barrels

(780,000 m3) of crude oil. An estimated 53,000 barrels per day (8,400 m3/d) escaped from

the well just before it was capped. It is believed that the daily flow rate diminished over

time, starting at about 62,000

barrels per day (9,900 m3/d) and

decreasing as the reservoir of

hydrocarbons feeding the

gusher was gradually

depleted. On September 19,

2010, the relief well process was

successfully completed, and the

United States federal

government declared the well

"effectively dead".

16 Wikipedia

18

The spill caused extensive damage to marine and wildlife habitats and to the

Gulf's fishing and tourism industries. Skimmer ships, floating containment booms, anchored

barriers, sand-filled barricades along shorelines, and dispersants were used in an attempt

to protect hundreds of miles of beaches, wetlands, and estuaries from the spreading oil17.

In January 2011 the White House oil spill commission released its final report on the causes

of the oil spill. They blamed BP and its partners for making a series of cost-cutting decisions

and the lack of a system to ensure well safety. They also concluded that the spill was not

an isolated incident caused by "rogue industry or government officials", but that "The root

causes are systemic and, absent significant reform in both industry practices and

government policies, might well recur".18 After its own internal probe, BP admitted that it

made mistakes which led to the Gulf of Mexico oil spill.19 In June 2010 BP set up a $20

billion fund to compensate victims of the oil spill. To July 2011, the fund has paid $4.7 billion

to 198,475 claimants. In all, the fund has nearly 1 million claims and continues to receive

thousands of claims each week. In September 2011, the U.S. government published its final

investigative report on the accident. In essence, that report states that the main cause

was the defective cement job, and Halliburton, BP and Transocean were, in different

ways, responsible for the accident.20

17 BP – Gulf Oil Claims: www.youlawyer.com/topics/reviews 18 BP – Gulf Oil Claims: www.youlawyer.com/topics/reviews 19 Dailymail.com 20 Supra

19

BP's Deepwater Horizon oil well explosion last

year killed 11 workers and caused the biggest

offshore spill in US history. Photograph: Reuters

Legal actions and costs21

In the US, BP faces a number of legal claims from a number of different parties under a

range of laws, including:

- The Oil Pollution Act 1990, under which BP must pay for all clean up costs, but

liability can be limited to US$75 million. However, this cap on liability does not

apply if BP, or any of its contractors, are found to have acted with gross

negligence, or found to have breached state or federal safety laws and

regulations.

- The Clean Water Act 1972, under which BP will have to pay fines depending on

the number of barrels of oil that were spilled. This is US$1,100 for each barrel, but

could go up to US$4,300 per barrel if it is found that the spill was caused as a

result of gross negligence or willful misconduct.

- US federal and state safety and operational regulations.

- The Refuse Act 1899

- The Endangered Species Act 1973

21 The Gulf of Mexico oil spill: consequences for the oil and gas industry; : Law stated as at 15-Feb-2011/Jurisdictions: Brazil, Canada, Mexico, USA, United Kingdom

20

- The Migratory Bird Treaty Act 1918

Class actions: In the immediate aftermath of the spill, local fishing and tourist communities

in Louisiana and along the Gulf Coast began class actions against BP and the other

parties involved, seeking damages for the effect the spill had on their lives and

businesses22. In May 2010, class actions were filed by the BP Oil Spill Legal Network on

behalf of a number of claimants to obtain damages for those whose livelihoods were

affected by the spill23. The plaintiffs in the claim allege that the defendants (which include

BP, Transocean, Halliburton and Cameron), owed them a duty of care to operate the rig

safely, and knew, or should have known, that the rig presented a risk and that its

equipment was faulty. As a result, the claimants are alleging that the defendants were

negligent in a number of areas. These include:

- Failure to inspect and monitor the rig's equipment.

- Failure to maintain and repair the rig's equipment.

- Failure to safely operate the rig's equipment.

- Failure to properly design, maintain, operate and function the blow out

preventer (BOP) valve.

- Failure to adequately cement the well head casing.

These class actions, and a number of others, were then combined in a multi-district

litigation claim in August 2010. The claim combines the economic damages claims with

personal injury and wrongful death claims against the defendants24.

BP's compensation fund25: In August 2010, BP set up a compensation fund to deal with the

claims. The US$20 billion compensation fund provides companies and individuals with the

22 BP hit by avalanche of compensation claims over US oil spill, guardian.co.uk, 31 May 2010 23 BP Oil Spill Legal Network files class action lawsuit on behalf of Louisiana commercial fishermen and charter boat operators, PR Web, 5 May 2010 24 Transfer order re: oil spill by the oil rig "Deepwater Horizon" in the Gulf of Mexico on 20 April 2010, United States Judicial Panel on Multi-district Litigation, BP Oil Spill Legal Network, 10 August 2010

21

right to claim a lump sum of compensation in lieu of going to court. In the final three

months of the compensation fund's claim period, 450,000 claims were submitted.

On 24 November 2010, the second phase of administration of the compensation fund

began, during which time the lump sum settlements were negotiated. Claimants who

seek compensation can still choose to sue BP and any other parties, unless they accept a

final settlement. Once they accept a final settlement, claimants must waive their right to

sue BP.26

Clean-up costs and civil and criminal fines: In addition to the compensation fund payouts,

BP is likely to face increasing costs for the clean-up operation, as well as a potentially

large fine from the US

government, following its civil

and criminal investigations into

the spill27. Media reports suggest

that the total cost for BP could

amount to over US$40 billion28.

BP has not so far invoked the

US$75 million liability cap under

the Oil Pollution Act 1990. Under

the Clean Water Act 1972, if BP were found to have been grossly negligent, it could face

potentially huge fines from the US government.

25 U.S. News/BP oil spill presents hosts of legal issues 26 Half of BP oil spill damages claims 'inadequate', says payout chief, guardian.co.uk, 24 November 2010 27 Box, Reports and investigations in the US 28 BP oil spill costs to hit $40bn, guardian.co.uk, 2 November 2010

22

US government legal action against BP29: On 15 December 2010, the US government's

Department of Justice (DoJ) announced that it would be suing BP, along with Anadarko,

Transocean, Mitsui and Lloyds of London. The DoJ filed its civil lawsuit in a New Orleans

court, stating that BP and others had breached federal safety and operational

regulations, which included:

- Failure to properly secure the Macondo well before the explosion on 20 April.

- Failure to use the safest drilling technology to check the well's condition.

- Failure to maintain and survey the well.

- Failure to use and maintain equipment that was necessary to ensure the safety

and protection of staff, property, natural resources and the environment.

The DoJ asserts that these failures caused or contributed to the oil spill and that, under the

Oil Pollution Act 1990, the defendants are therefore responsible for the government's

clean-up costs, as well as the losses suffered by local businesses and individuals and

damage caused to the environment30. The DoJ is also seeking civil penalties under the

Clean Water Act 1972 for the large amount of oil that was released into the Gulf before

the well was capped.

Other parties' liabilities: The numerous legal claims against BP will likely be lengthy and

complex to resolve. Adding to the complexity is the potential liability of the other parties

involved, including Transocean (the drilling company), Halliburton (the cementing

contractor of the well) and Anadarko and Mitsui (who both co-owned part of the well

with BP), as well as Cameron International (who built the blow out preventer). In BP's own

report on the incident on 8 September 2010, it attributed the accident to eight separate

causes, including the cement work done by Halliburton and the way in which the well was

29 The legal aspects of the BP Deep oil spill; Dr. Shibley Rahman – www.lawandmedicine.wordpress.com/June 22, 2010 30 United States sues BP over Gulf oil disaster, guardian.co.uk, 16 December 2010

23

operated by Transocean31. A preliminary report on 28 October 2010 from the US National

Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling announced that

Halliburton's cement job was inadequate, and that Halliburton and BP knew this was the

case. This finding raises the prospect of BP and Halliburton being found grossly negligent

for the spill. However, BP could still be found principally liable for damages because of the

control it exercised over Transocean and Halliburton, according to commentators32. In any

case, there is no doubt that there will be a protracted and lengthy dispute between BP,

Transocean, Halliburton, and the various other parties over who was primarily responsible

for the spill and who will be liable for compensation to the numerous businesses affected

by it. The oil and gas industry will no doubt be paying close attention to the dispute

between the owners of the rig, the result of which may inform how third party contractors

are dealt with in the future, with potentially stricter indemnity provisions within contracts33.

Prestige Oil Spill34

The Prestige oil spill was an oil spill off the coast of Galicia caused by the sinking of an oil

tanker in 2002. The spill polluted thousands of kilometers of coastline and more than one

thousand beaches on the Spanish, French and Portuguese coast, as well as causing great

harm to the local fishing industry. The spill is the largest environmental disaster of

both Spain's history and Portugal's history.

31 www.bp.com/generalarticle/BP releases report on causes of Gulf of Mexico tragedy, 8 September 2010 32 Legal battle over spill still wide open, www.ft.com, 8 September 2010 33 www.ft.com 34 http://news.bbc.co.uk/2/hi/not_in_website/syndication/monitoring/media_reports/2496101.stm

24

The French, Spanish and Portuguese governments refused to allow the Prestige to dock in their ports.

On November 13, 2002, while the Prestige was carrying a 77,000 metric tons cargo of two

different grades of heavy fuel oil, one of its twelve tanks burst during a storm off Galicia, in

northwestern Spain. Fearing that the ship would sink, the captain called for help from

Spanish rescue workers, with the expectation that the vessel would be brought into

harbour. However, pressure from local authorities forced the captain to steer the

embattled ship away from the coast and head northwest. Reportedly after pressure from

the French government, the vessel was once again forced to change its course and head

southwards into Portuguese waters in order to avoid endangering France's southern coast.

Fearing for its own shore, the Portuguese authorities promptly ordered its navy to intercept

the ailing vessel and prevent it from approaching further.

With the French, Spanish and Portuguese governments refusing to allow the ship to dock in

their ports, the integrity of the single hulled oil tanker was deteriorating quickly and soon

the storm took its toll when it was reported that a 40-foot (12 m) section of the starboard

hull had broken off, releasing a substantial amount of oil35.

35 www.upi.com/topnews

25

At around 8:00 AM on November 19, the ship split in half. It sank the same afternoon,

releasing over 20 million US gallons (76,000 m3) of oil into the sea. The oil tanker was

reported to be about 250 kilometers from the Spanish coast at that time. An earlier oil slick

had already reached the coast. The Greek captain of the Prestige, Apostolos Mangouras,

was taken into custody, accused of not co-operating with salvage crews and of harming

the environment. After the sinking, the wreck continued leaking oil. It leaked

approximately 125 tons of oil a day, which polluted the sea bed and contaminated the

coastline, especially along the territory of Galicia. The affected area is not only a very

important ecological region, supporting coral reefs and many species of sharks and birds,

but it also supports the fishing industry. The heavy coastal pollution forced the region's

government to suspend offshore fishing for six months.

Bottlenose-dolphin-Marine mammals

suffered lung and liver disease during

water pollutions as a result of oil spills.

Legal Consequences36

For the world maritime

industry, a key issue

raised by the Prestige incident was whether classification societies can be held responsible

for the consequences of incidents of this type. In May 2003, the Kingdom of Spain brought

civil suit in the Southern District of New York against the American Bureau of

Shipping (ABS), the Houston-based international classification society that had certified

the Prestige as "in class" for its final voyage. The "in class" status states that the vessel is in

36 Supra

26

compliance with all applicable rules and laws, not that it is or is not safe. On 2 January

2007, the docket in that lawsuit (SDNY 03-cv-03573) was dismissed. The presiding judge

ruled that ABS is a "person" as defined by the International Convention on Civil Liability for

Oil Pollution Damage (CLC) and, as such, is exempt from direct liability for pollution

damage. Additionally, the Judge ruled that, since the United States is not a signatory to

the International CLC, the US Courts lack the necessary jurisdiction to adjudicate the case.

Spain's original damage claim against ABS was some $700 million37.

Among the legal consequences of the disaster was the arrest of the captain of the

Prestige, Captain Mangouras. Captain Mangouras sought refuge for his seriously

damaged vessel in a Spanish port. This is a request the acceptance of which has deep

historic roots. Spain refused and the criminal charges against Captain Mangouras

included his refusal to comply immediately with the Spanish demand to restart the

Prestige's engine and steam offshore. It is an unanswerable question whether bringing the

ship into port and booming around her to contain the leaking oil would have been less

harmful than sending her back to sea and almost inevitable sinking.

Nigeria: Oil Spills in the Niger-Delta38

The oil industry has an enormous physical presence in the environmentally sensitive, highly

populated Niger Delta of Nigeria. Throughout 50 years of oil production, this ecologically

productive region has suffered extensive habitat degradation, forest clearing, toxic

discharges, dredging and filling, and significant alteration by extensive road and pipeline

construction from the petroleum industry. Of particular concern in the Niger Delta are the

frequent and extensive oil spills that have occurred. These spills are underreported, but

37 Supra 38 Double standard: Shell practices in Nigeria compared with international standards to prevent and control pipeline oil spills and the Deepwater Horizon oil spill, Professor Richard Steiner/Anchorage, Alaska USA (November 2010)

27

independent estimates are that at least 115,000 barrels (15,000 tons) of oil on average are

spilled into the Delta each year, making the Niger Delta one of the most oil impacted

ecosystems in the world. The Niger Delta can be regarded as a High Consequence Area

for oil spills, requiring additional risk-reduction measures from oil companies.

Oil spills have a significant impact on the natural resources upon which many poor Niger

Delta communities depend. Drinking water is polluted, fishing and farming are significantly

impacted, and ecosystems are degraded. Oil spills significantly affect the health and food

security of rural people living near oil facilities. Additionally, oil spills and associated

impacts of oil and gas operations have seriously impacted the biodiversity and

environmental integrity of the Niger Delta. There has been a significantly higher rate (spills

per length of pipeline) of serious pipeline spills in the Niger Delta than in developed

countries such as the U.S., beyond that accounted for by sabotage. This, and other

evidence, suggests that oil companies operating in the Niger Delta are not employing

internationally recognized standards to prevent and control pipeline oil spills39.

Nigerian law on oil spills

Petroleum Related Laws and Regulations

Part of the means of managing the environment and preventing oil spills is to have in

place the necessary laws, regulations and guidelines. According to the Federal

Environmental Protection Agency, Nigeria, the following relevant national laws and

international agreements are in effect:

16. Endangered Species Decree Cap 108 LFN40 1990.

17. Federal Environmental protection Agency Act Cap 131 LFN 1990.

18. Harmful Waste Cap 165 LFN 1990.

39 Supra 40 Laws of the Federation of Nigeria (LFN)

28

19. Petroleum (Drilling and Production) Regulations, 1969.

20. Mineral Oil (Safety) Regulations, 1963.

21. International Convention on the Establishment of an International Fund for

Compensation for Oil Pollution Damage, 1971

22. Convention on the Prevention of Marine pollution Damage, 1972

23. African Convention on the Conservation of Nature and Natural Resources,1968

Oil Spill Prevention

The Nigerian Petroleum Act of 1969 grants the Minister of Petroleum Resources the

statutory authority to revoke an oil operator’s license to operate if the operator does not

comply with ‘good oil field practice.’ The Mineral Oils (Safety) Regulations of 1962

(incorporated in the Nigerian Petroleum Act) states that good oil field practice

compliance: `shall be considered to be adequately covered by the appropriate current

Institute of Petroleum Safety Codes, the American Petroleum Institute [API] Codes, or the

American Society of Mechanical Engineers [ASME] Codes.’ The Petroleum Drilling and

Production Regulations of 1969 (implementing the Petroleum Act) require companies to:

`adopt all practicable precautions including the provision of up-to-date equipment (in

order to prevent pollution, and if pollution does occur they must take) `prompt steps to

control and, if possible, end it’. The operators are also required by these regulations to

maintain all installations in good repair in order to prevent: `the escape or avoidable

waste of petroleum’, (and to cause) `as little damage as possible to the surface of the

relevant area and to the trees, crops, buildings, structures, and other property thereon.41’

41 Supra

29

The Nigerian Department of Petroleum Resources (DPR) further expanded these

requirements in 1991 when they instituted the Environmental Guidelines and Standards for

the Petroleum Industry (EGASPIN), which was revised and updated again in 2002.

EGASPIN confirms that oil and gas operations are governed by the Nigerian Petroleum Act

and subsequent federal legislation. (NG-EGASPIN 2002)42.

Oil Spill Response

Regarding response to oil spills, EGASPIN43 states, among other things:

- `Clean-up shall commence within 24 hours of the occurrence of the spill.’

- `For inland waters/wetland, the lone option for cleaning spills shall be complete

containment and mechanical/manual removal. It shall be required that these

clean-up methods be adopted until there shall be no more visible sheen of oil

on the water.’

- `Clean-up of oil spills in contaminated environments shall be conducted in such

a manner as not to cause additional damages to the already impacted

environment’.

- EGASPIN stipulates that oil contamination of soil, sediment and surface water

may not exceed specified levels that are consistent with internationally

recognized standards for maximum levels of oil pollution.

- Section 4.6 of this report below contains a more detailed discussion of Shell

Nigeria’s lack of compliance with EGASPIN.

Legal Aspects and Consequences of Oil spills

Flowing from the foregoing, it is evident that across borders, international, states and local

legal and regulatory frameworks have been put in place to checkmate oil spills and

42 Impacts and Management of Oil Spill Pollution along the Nigerian Coastal Areas by Peter C. Nwilo and Olusegun T. Badejo 43 page 148

30

pollutions over the coastal space and territories in other to protect the life inherent therein

and also prevent other environmental hazards; and a breach of these safety, operational

and other coastal regulations tantamount to a

strict liability by the operators and or offenders

and the cause of action is applicable in

maritime common law, criminal liability,

contract law and tort; and as a result of willful

misconduct, gross negligence, criminal

misconduct44.

The consequences for the above breaches

include the following45:

1. General damages and Punitive damages where necessary (but limited to cases of

enormity)

2. Payment of cleanup and Remediation costs/expenses

3. Compensation – legal settlements for afflicted parties

4. Criminal prosecution for personal liabilities, and

5. Revocation of license in cases of gross violation (as in Nigeria).

Conclusion and Recommendations: The future

Legal consequences, actions, and claims arising from oil pollution have over the years

given rise to a number of difficult legal problems. They have also represented significant

amounts of money. It has nonetheless been possible to settle theses legal issues and pay

the major part of these claims promptly with or without litigation. The experiences show

44 www.mcclatchydc.com/will-bp-adopt-legal-strategy 45 Oil services feel post-Macondo activity jump, ft.com, 10 November 2010

31

that if the attendant oil spill legal issues are handled in the spirit of cooperation, it is

possible to resolve them and mitigate the hardship that arise therefrom especially to

individuals and small businesses.

As for the oil industry themselves, although the oil spill for example in the Gulf of Mexico,

Bonga in Nigeria, amongst others are undeniably tragic and set in motion numerous

regulatory and commercial changes to the energy sector, the oil and gas industry will

most likely emerge intact, if not stronger than before if handled with adequate tact and

skill. The industry should take a good look at its own safety practices and show the public

and governments that safety and environmental issues can be dealt with in conjunction

with exploration and development activities.

As oil continues to be valuable and cleaner forms of energy are not yet widely used,

despite the fact that there will be numerous new restrictions and regulations on the

industry, oil and gas exploration and development looks likely to continue into the

foreseeable future.

In the case of Nigeria, in order to prevent oil spills, Nigerian law requires oil companies

beyond mere rhetoric to ensure `good oil field practice’ by complying with internationally

recognized American Petroleum Institute (API) and American Society of Mechanical

Engineers (ASME) standards for all petroleum production and transportation operations. To

control oil spills, Nigerian law requires companies to take `prompt steps’ and initiate clean

up operations within 24 hours of the spill. As such, government oil spill prevention and

32

response requirements for Shell46 for example in Nigeria are essentially the same as

anywhere Shell operates globally47.

OBOZUWA ENIKE DOMINIC

Associate

Wali-Uwais & Co.

Barristers, Solicitors & Notary Public

Right Wing, 1st Floor, Afri-Investment House

Plot 2669 (#50) Aguiyi Ironsi Street, Maitama, Abuja

P. M. B. 5049, Garki, Abuja, FCT – Nigeria

April 2012.

46 February 20, 2012 - Nigerian Maritime Administration and Safety Agency, NIMASA, has concluded plans to file a legal action against Shell Petroleum Development Company, SPDC, over environmental damage by the Bonga oil spill that has affected over 70 communities in the Niger Delta. He said at a point, Shell was trying to put the blame on a third party spill, a claim that was later discovered to be false as analysis of samples taken from both the so called third party spill and the spill from Bonga were one and the same. 47 Evidences show that in contrast to the handling of the Deep Water Horizon spill, amongst others, Shell Exploration company, which has been in Nigeria for over 50 years, has not kept to internationally acceptable standards in managing oil pollution in Nigeria and a lot more is required of Shell because to whom much is given, much is expected.