On April 20, 2010, an explosion at BP’s Deepwater Horizon offshore oil platform set in motion the worst oil spill in history. Eleven workers on the platform died in the explosion or its immediate aftermath, and the platform sank almost a mile to the bottom of the Gulf of Mexico. To compound the disaster, repeated efforts to cap the underwater oil well failed, and oil continued to hemorrhage into the Gulf for 86 days. By the time BP succeeded in capping the well on July 26, millions of gallons of oil and large volumes of gas had been discharged into the Gulf, a large oil slick had formed on the ocean surface, oil was washing up on the shores of every Gulf state, affecting summer tourism, and BP’s public image as a prestigious, well-managed global corporation had been destroyed.
In August 2010, Kent Syverud, who served as Vanderbilt Law School’s dean from 1997 to 2005, was tapped to serve as one of two trustees of a $20 billion trust fund created by BP following negotiations with the White House to compensate holders of resolved claims arising from the oil spill. Syverud, who is now Dean and Ethan A. J. Shepley University Professor at Washington University School of Law, described the events leading up to the formation of the Gulf of Mexico Trust and the issues with which the trustees have had to contend in a talk, “Lessons of the Deepwater Horizon Oil Spill Trust,” at Vanderbilt Law School on September 22, which was sponsored by the Cecil D. Branstetter Litigation and Dispute Resolution Program.
“The Obama administration required that BP set aside $20 billion to pay claims related to the spill in a trust to be administered by Kenneth Feinberg,” Syverud said. “The important words here are ‘20 billion dollars.’” After the White House and BP agreed on the amount that BP would contribute to the trust—an amount Syverud acknowledges was based on a best estimate of the amount needed to pay all claims for damages resulting from the spill—teams of lawyers representing BP and the U.S. government began to hammer out the details of how the trust would be funded and administered.
That process took six weeks, and one major sticking point was the need for collateral to secure the trust. “BP did not have $20 billion, and this would not have been a good time for BP to sell off assets to generate the funds,” Syverud said. BP funded the trust with an initial $3 billion, which meant that “$17 billion would be secured to the trust with some form of collateral. The White House and BP couldn’t reach agreement on who would identify and value the collateral,” he said.
Under pressure from President Obama, an agreement was reached within six weeks that called for BP to pay an additional $1.25 billion into the fund every three months. Syverud noted that as of August 2011, BP had paid $10 billion into the trust. “We take seriously our efforts to make sure BP fully funds the trust,” Syverud emphasized, acknowledging that one irony of the agreement is that some trust funds are secured by BP’s property rights to drill for oil in the Gulf of Mexico.
Syverud and co-trustee John H. Martin, a former U.S. District Court judge for the Southern District of New York, found their responsibility of oversight of money in the trust more challenging than either had expected. “That was supposed to be the easy part,” Syverud said. “The money had to be highly liquid, highly safe, in highly rated money market funds. Of course, we didn’t expect at the time that the U.S. would come near default.”
The trust is divided into five separate “streams” earmarked for specific types of claims, including state and local government response costs, natural resources damages, pending settlements and judgments, a Gulf Coast early restoration fund available to states, and claims from individuals and businesses. “Most money to date has been paid out to individuals and businesses,” Syverud said. “We’ve resolved more than 500,000 of such claims to date. A lot of people have gotten a lot of money quickly compared to the Exxon Valdez spill, where many people didn’t see any money for more than a decade.”
As of September 1, 2011, BP reported payments from the trust of more than $5.5 billion to individuals and businesses, and payments of almost $1.3 billion to federal and state governments for advances and claims.