Oil spill conviction buoys pipeline foes
Calif. verdict puts more scrutiny on industry projects
A guilty verdict late Friday against Plains All American Pipeline has left the Houston energy company a convicted felon for its role in causing a large oil spill in California, adding new ammunition to the fight over pipelines, which have become a prime target of the movement against fossil fuels in North America.
The California jury found Plains guilty on one felony and eight misdemeanor counts, agreeing with the prosecution that the company failed to maintain the badly corroded pipeline responsible for spilling about 3,400 barrels of oil at Refugio State Beach in Santa Barbara — and then failed to promptly report the incident. The spill, the biggest on the California coast in 25 years, spread into the Pacif-
ic Ocean and killed marine, bird and wildlife.
The verdict comes not only at a time of transition for Plains as its co-founder and chief executive retires at the end of September but also for an energy industry that’s desperately trying to build more pipelines to accommodate record volumes of U.S. oil and gas production, especially in Texas.
“The general impact will be to increase scrutiny of new pipelines not just in California, but throughout the U.S. where we have seen increasingly lengthy and polarizing permit battles,” said Sandy Fielden, director of oil and products research at Morningstar, an investment research firm.
Fielden cited fights over the stillpending Keystone XL pipeline in the Midwest and the recently completed Dakota Access Pipeline in North Dakota, as well as smaller projects such as the Bayou Bridge pipeline extension in Louisiana, which is now the target of environmental protests.
The Plains All American verdict could energize pipeline opponents who argue that some companies cut corners on maintenance to afford healthy dividend payouts to investors, Fielden said. The likely result is project delays and continued pipeline constraints that could boost energy prices as producers turn to more expensive rail and trucking.
Environmentalists, meanwhile, hailed the verdict and vowed to fight Plains All American’s plans to rebuild the pipeline.
“Plains’ criminal negligence caused this devastating oil spill, and we can’t give it a second chance to spill again,” said Kristen Monsell, oceans legal director with the advocacy group Center for Biological Diversity in California.
Governments frequently launch civil cases against corporations for pollution and other cases when they suspect misconduct, seeking restitution as well as financial penalties. Criminal prosecutions, which require a higher burden of proof, tend to be reserved for highprofile cases, such as the Exxon Valdez spill in Alaska in the 1980s or the Deepwater Horizon explosion in 2010, said Philip Hilder, a former federal prosecutor now in private practice.
It’s unusual, however, that these criminal cases go to trial, Hilder said. For example, BP, which operated the Deepwater Horizon rig, pleaded guilty to several felonies and paid billions of dollars in criminal penalties before the case went before a jury.
“Companies tend to settle cases before trial by paying fines,” Hilder said. “When there’s a high-profile spill, the government will tend to use those as teaching moments and prosecute.”
The Santa Barbara spill occurred on May 19, 2015, after a Plains pipeline called Line 901 ruptured. Corrosion issues had been documented as early as 2012, according to court records. In addition, an alarm that should have signaled the leak was turned off at the time, allowing more oil to spill and delaying reports to authorities.
About a year after the spill, a California grand jury indicted Plains All American and an employee, although the employee was later dropped from the indictment. Plains All American took responsibility for the spill but vehemently denied that it had acted criminally.
Despite the guilty verdict on some counts, the jury found that Plains was not guilty of knowing misconduct. In a statement, the company said: “We are committed to doing the right thing. The verdict reflected no knowing wrongdoing by Plains or our employees with respect to the operation of Line 901, and the testimony established our comprehensive cleanup effort.”
No company executives or employees face jail time. Plains may still appeal the case.
Sentencing is scheduled for Dec. 13. Plains could face penalties of more than $1.5 million, but those fines pale in comparison to the $150 million Plains said it spent on cleanup, as well as many millions more lost from the extended pipeline shutdown.
“All things being equal,” said Ed Hirs, energy economist at the University of Houston, “this is probably the best outcome Plains realistically could have hoped for.”
Plains still faces civil lawsuits filed by California fishermen, property owners and some Plains investors, and the conviction could bolster these cases and lead to bigger payouts by the company, he said. The lesson here, Hirs added, is companies must go above and beyond state and federal regulations to ensure that pipelines are properly inspected and maintained.
“It’s quite clear Plains missed something here,” Hirs said. “A pipeline does not corrode or fall apart over just six months.”
The line is part of the “All American Pipeline System” that receives crude from Exxon Mobil’s Santa Ynez field at Las Flores, south of Los Angeles, and ends at Plains’ Emidio Station north of Santa Barbara. Exxon Mobil is applying to use tanker trucks to transport oil so it can restart production in the region.
Over the past dozen years, Plains and its subsidiaries have reported about 280 incidents that spilled some 30,000 barrels of hazardous liquids, according to the U.S. Pipeline & Hazardous Materials Safety Administration. The number of incidents ranks among the highest in the industry, but Plains is one of the nation’s largest oil pipeline firms.
Plains CEO Greg Armstrong will retire at the end of September after more than 25 years, setting up the chief operating officer, Willie Chiang, who joined the company in 2015, to succeed him. Armstrong became CEO in 1992 when the company was launched as Plains Resources. It was renamed Plains All American six years later.
Armstrong will remain Plains’ chairman through 2019.