BP Is Biggest Loser Among U.S. Government Contractors

By Jonathan D. Salant and Kathleen Miller – Mar 10, 2014

BP Plc (BP/), once the Pentagon’s top fuel supplier, is now the biggest loser among U.S. government vendors. A combination of no big contracts awarded and promised military work withdrawn left BP with a net loss of $654 million in federal contracts in the year that ended Sept. 30, according to data compiled by Bloomberg. That compared with $2.51 billion in awards in fiscal 2012.

“I have never heard of a contractor falling in anything remotely like the distance from plus $2 billion to minus $600 million,” said Charles Tiefer, a University of Baltimore law professor and former member of the U.S. Commission on Wartime Contracting. “The government has come down on BP because it needs to see that BP does not merely talk the talk of behaving responsibly but actually walks the walk.”

The London-based company was temporarily barred from new federal contracts and other work after the 2010 Gulf of Mexico oil spill. While BP has sued to get the suspension lifted, the U.S. has said it wants to continue the ban, which also affects oil and gas leases coveted by the supplier. The suspension cost BP the ability to win new federal work that might be worth billions of dollars. The Defense Department, by far the government’s biggest buyer of petroleum products, also withdrew obligations, or promised funding, of more than $400 million last year after one of its offices didn’t buy a minimum amount of fuel required under the contracts.

No Extensions
Government agencies that don’t make such minimum purchases usually extend contracts rather than cancel them, said Rob Burton, a partner at the law firm Venable LLP and deputy administrator of the Office of Federal Procurement Policy under President George W. Bush. “They feel it’s a high risk to terminate and find alternative sources,” Burton said in an interview.
Instead, the Defense Logistics Agency, part of the Pentagon, chose to let the agreements expire.

“Suspended contractors cannot have the duration of their contracts extended without a compelling reason to do so,” Mimi Schirmacher, a spokeswoman for the agency, said in an e-mail. Three of the defense agency’s contracts, originally valued at a total of $2.15 billion, were awarded between May and September 2012 before BP’s temporary ban in November 2012, according to data compiled by Bloomberg. The three contracts weren’t extended “as a result of the suspension, which we are challenging in court,” Geoff Morrell, a BP spokesman, said in an e-mailed statement.

BP Sues
The company in August sued the Environmental Protection Agency in federal court in Houston to try to get the suspension lifted. “We believe that the EPA’s disqualification and suspension decisions should be invalidated because they are arbitrary and capricious,” Morrell said.

The government in January asked the court to continue the ban, saying BP hasn’t yet demonstrated it would act responsibly.
The EPA imposed the suspension after determining that the company hadn’t fully corrected problems that led to the fatal explosion aboard the Deepwater Horizon drilling rig. “Given this history, it was wholly reasonable” for the agency to “conclude that BP’s latest round of plans and promises is insufficient to demonstrate that BP is a responsible federal contractor,” the Justice Department said in the court filing. With BP temporarily blacklisted, the government is turning to other companies.

Largest Sellers
In fiscal 2011, BP was the largest seller of fuel to the military, with $1.37 billion in prime, or direct, contracts. A year later, it ranked just below No. 1 Royal Dutch Shell Plc (RDSA), based in the Hague, Netherlands — which had $2.86 billion.
Closely held Refinery Associates of Texas, based in New Braunfels, Texas, was the No. 1 supplier last year, with $1.34 billion. It was followed by Miami-based World Fuel Services Corp. (INT), with $1.19 billion, and National Fuel Inc., based in Kabul, Afghanistan, with $912.7 million.

The federal data measure contract obligations, or funding that is set aside for later spending. The data is published by the U.S. government and compiled by Bloomberg. BP, in the meantime, received just $31 million in contracts from federal agencies, while $685 million in planned orders disappeared, most of it from the withdrawn military work. The company’s reversal of fortune is unusual, said Brian Friel, a Bloomberg Industries analyst. Its fall in the rankings shows “the extraordinary circumstance of the Gulf oil spill that led to BP’s fall from grace with the U.S. government,” he said.

Natural Gas
Among federal agencies, the U.S. Justice Department had the most contract obligations with BP in fiscal 2013 — $341,225 for natural gas at the Bureau of Prisons. Brian Fallon, a Justice Department spokesman, didn’t return e-mails seeking comment.
Suspended companies are allowed to continue to sell to the government under existing contracts or when no alternatives exist.
The suspension may cost BP opportunities to expand its foothold in the Gulf of Mexico. The Bureau of Ocean Energy Management, part of the Interior Department, has scheduled an auction March 19 for more than 40 million acres for oil and gas exploration.
BP is the second-biggest oil producer in the Gulf with 63.6 million barrels in 2013, second only to Shell, according to Interior Department figures. Chevron Corp. (CVX) is No. 3. “It’s been a core strength for them,” Brian Youngberg, an energy analyst with Edward Jones & Co. in St. Louis, said in a telephone interview. “They’re anxious to get back into the Gulf.”

More Oil
BP produced more than 200,000 barrels of oil a day in the fourth quarter from its 10 rigs in the Gulf, Chief Executive Officer Robert Dudley said on Feb. 4 during the company’s fourth-quarter earnings conference call. It expects to eventually produce more than 300,000 barrels of oil a day in the area, he told investors.

In an investor call last year, Dudley called the Gulf drilling “central to the portfolio for decades to come.”
The suspension won’t prevent BP from bidding March 19, only from winning, Jessica Kershaw, an Interior spokeswoman, said in an e-mail.If the company is the high bidder and the suspension is lifted during an evaluation period after the auction, BP will win the leases. If the suspension remains in place, it won’t.

BP pleaded guilty in January 2013 to 11 counts of felony seaman’s manslaughter, two pollution violations and one count of lying to Congress in connection with the offshore spill, the worst in U.S. history. It agreed to pay $4.25 billion in related criminal and civil penalties and faces additional fines, in addition to thousands of claims by individuals and companies.

Analyst Youngberg said the U.S. may want the ban in place until all the lawsuits are settled. “EPA may be saying as long as there’s litigation, they won’t lift the suspension,” he said. “Is that an incentive for BP to settle? Possibly.”

To contact the reporters on this story: Jonathan D. Salant in Washington at; Kathleen Miller in Washington at
To contact the editors responsible for this story: Stephanie Stoughton at Stephanie Stoughton, Mark McQuillan

Special thanks to Richard Charter

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