The US government temporarily banned BP Plc from new federal contracts today over its "lack of business integrity" in the Deepwater Horizon oil spill in 2010, a move that the British company had said could force it to rethink its entire US operations.
The US Environmental Protection Agency said the suspension was "standard practice" following criminal actions. On November 16, BP agreed to plead guilty to criminal misconduct in the Gulf of Mexico disaster, the worst offshore oil spill in U.S. history, and to pay record penalties of $4.5 billion.
In London, BP had no immediate comment on the suspension.
BP and its affiliates are barred from new federal contracts until they demonstrate they can meet federal business standards, the EPA said. BP's existing U.S. government contracts are not affected, it said.
The suspension could hamper BP's ability to maintain its position as a top supplier of jet fuel and other refined products to the US military. It could also threaten BP's dominance in the Gulf of Mexico, where it is the largest producer of oil and natural gas and the largest lease-holder.
BP affiliates are major suppliers of fuel to the U.S. military, the largest single buyer of oil in the world. As recently as September, BP affiliates won two fuel supply contracts with the U.S. military worth as much as $1.37 billion to supply fuel to the US Defence Logistics Agency, the Pentagon's procurement arm, according to a US website that tracks military contracts.
However, the suspension will have a "minimal direct financial impact," and will not impair BP's ability to produce oil and gas from existing US assets, said Pavel Molchanov, an analyst with Raymond James & Associates Inc in Houston.
"BP's supply contract of fuels to the Pentagon might be at risk, but of course BP could supply other customers if this supply contract is not renewed," Molchanov said in a research note.
The company will not be able to lease new exploration territory in the federal Gulf of Mexico, one of BP's biggest oil production regions globally. Some 20 million acres of offshore territory is being auctioned today.
The Interior Department would not award any lease to BP "unless and until" the company resolves its suspension from federal contracts, a department official said on Wednesday.
The EPA statement did not say how long the suspension could last.
"Federal executive branch agencies take these actions to ensure the integrity of federal programs by conducting business only with responsible individuals or companies. Suspensions are a standard practice when a responsibility question is raised by action in a criminal case," it said.
One long-time critic of BP applauded the decision.
"After pleading guilty to such reckless behaviour that killed men and constituted a crime against the environment, suspending BP's access to contracts with our government is the right thing to do," US Rep. Edward Markey, a Democrat from Massachusetts, said in a statement.
BP recognized the risk that it could be banned from US government contracts when it agreed earlier this month to plead guilty to criminal charges over the spill, but it said at the time it had "not been advised of the intention of any federal agency to suspend or debar the company in connection with this plea."
BP's Finance Director Brian Gilvary told investors on a November 15 conference call that should a blanket ban be put in place, the company may have to rethink its entire US business.
BP shares ticked lower in London after the news to stand 1 per cent down on the day at 427 pence, but were still outperforming a weak European energy sector.