BP's partner in crime

By Phil Mattera, Dirt Diggers Digest

The liability costs stemming from the ongoing environmental disaster in the Gulf of Mexico are likely to be in the tens of billions of dollars. BP, of course, will bear the brunt of those costs, but other deep pockets should not be ignored. Transocean, the owner of the rig where the initial explosion occurred, and Halliburton, which was supposed to seal the well with concrete, will both be targeted.

But we shouldn't forget that BP is not the sole owner of the underground well, known as Macondo, that continues to spew large quantities of crude oil into the sea. The biggest minority holder, with a 25 percent share, is Anadarko Petroleum, which is a major offshore driller in its own right and has ties to major controversies in the energy industry. The company is worth a closer look.

Anadarko was formed in 1959 as a subsidiary of Panhandle Eastern Pipe Line Company, which used the entity to get around Federal Power Commission limitations on the price it could charge on natural gas produced from properties it owned in the Anadarko Basin in Texas, Oklahoma and Kansas. Anadarko got involved in offshore exploration in 1970. Among its early project partners was Amoco, which would later (1998) be acquired by BP.

By the 1990s Anadarko was a major player in the Gulf of Mexico. During the following decade the company became better known (and much larger) after acquiring Union Pacific Resources and then Kerr-McGee, which had pioneered offshore petroleum exploration in the late 1940s. The latter acquisition, in particular, saddled Anadarko with a dubious legacy.

In the 1970s Kerr-McGee was embroiled in a scandal over accusations of serious safety violations and falsification of records at its nuclear fuel plant in Oklahoma. The controversy escalated after the whistleblower in the case, technician and union activist Karen Silkwood, died under suspicious circumstances in 1974. Silkwood's family sued the company for causing her to be contaminated with plutonium. In 1986 Kerr-McGee paid $1.38 million to settle the case after a jury award of $10.5 million had been overturned on appeal.

Two decades later, Kerr-McGee mounted a court battle to prevent the federal government's Minerals Management Service from restoring royalty rates paid by offshore drillers to reasonable rates after they had been reduced by Congress when energy prices were low in the mid-1990s. The case, which was resolved after Anadarko completed its acquisition of Kerr-McGee, could U.S. taxpayers, according to a Government Accountability Office estimate, more than $50 billion.

While Kerr-McGee was pursuing its case it was also defending itself against a whistleblower suit charging that the company had cheated the federal government out of millions of dollars in offshore drilling royalties by underreporting its output. In January 2007 a federal jury found the company guilty, but the judge in the case later overturned the verdict on a technicality.

Anadarko's own record is not unblemished. Last year it and two related companies paid $1.05 million in civil penalties and agreed to spend $8 million in remedial actions to resolve charges that they violated the Clean Water Act by discharging harmful quantities of oil from a production facility in Wyoming. Two years earlier the company was fined $157,500 by the EPA for destroying wetlands in southwest Wyoming. Anadarko is also heavily involved in natural gas drilling in the Marcellus Shale in the northeastern United States, which is viewed as a serious threat to drinking water supplies. Its joint venture partner in the shale operations is Mitsui, which is also the third partner (with a 10 percent stake) in the Macondo well.

Anadarko does not appear to have had any role in operational decisions at that ill-fated Macondo well, but the company is separately involved in its own deepwater drilling activities in the Gulf of Mexico that were temporarily shut down as a result of the moratorium announced by President Obama. While BP rightfully remains the primary target of legal and other responses to the Gulf disaster, Anadarko -- both by virtue of its ownership interest in Macondo and its own risky drilling -- also deserves to feel some of that pain.