Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 1 of 150 IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In Re: BP P.L.C., SECURITIES ) Case No.: 10-md-2185 LITIGATION ) ) ) HON. KEITH P. ELLISON CONSOLIDATED CLASS ACTION COMPLAINT FOR FOR VIOLATIONS OF FEDERAL SECURITIES LAWS (SUBCLASS) JURY TRIAL DEMANDED Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 2 of 150 TABLE OF CONTENTS Page I. INTRODUCTION 2 II. THE PARTIES. 7 A. PLAINTIFFS 7 B. DEFENDANTS 9 1. CORPORATE DEFENDANT. 9 2. INDIVIDUAL DEFENDANTS. 9 C. UNNAMED PARTICIPANTS. 13 III. JURISDICTION AND VENUE 14 A. JURISDICTION AND VENUE. 14 B. CAUSE AND EFFECT IN THE UNITED STATES . 15 IV. SUBCLASS ACTION ALLEGATIONS 16 V. FACTUAL ALLEGATIONS 18 A. BP’S RAPID GROWTH: ACQUISITIONS AND DEEP SEA EXPLORATION OF THE GULF OF MEXICO 18 1. THE CHALLENGES OF DEEPWATER OIL DRILLING IN THE GULF OF MEXICO 20 2. STATUTES AND REGULATIONS RELEVANT TO OFFSHORE DRILLING. 21 3. THE PROCESS OF FINDING AND DRILLING A DEEPWATER OFFSHORE WELL. 23 a. Searching for and Finding a Reservoir of Oil and Gas. 23 b. Drilling A Well. 25 i Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 3 of 150 c. Preparing for Oil Extraction. 27 d. Temporary Abandonment. 31 B. BP’S CORPORATE STRATEGY OF DRACONIAN COST-CUTTING . 33 C. BP’S HISTORY OF SAFETY LAPSES 34 1. 2003: FORTIES ALPHA. 34 2. 2005: TEXAS CITY DISASTER 35 a. Background of the Texas City Disaster 35 b. US Chemical Safety and Hazard Investigation Board Report 37 c. BP Issues Incident Investigation Report. 39 d. Costs and Consequences to BP of the Texas City Disaster 40 3. 2005: THUNDER HORSE. 40 4. 2006: PRUDHOE BAY, ALASKA. 41 a. Employees’ Complaints of Cost Cutting At the Expense of Safety. 42 b. BP Pleads Guilty . 46 D. REGULATORY REPORTS FORCE BP TO ADDRESS, AT LEAST PUBLICLY, SAFETY LAPSES 47 1. BAKER REPORT 47 2. U.S. CHEMICAL SAFETY AND HAZARD INVESTIGATION BOARD FINAL REPORT 54 E. BP RESPONDS TO ENVIRONMENTAL DISASTERS BY PROMISING CHANGE. 55 F. BP MISLEADS INVESTORS REGARDING THE SAFETY OF ITS GULF OPERATIONS. 57 ii Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 4 of 150 1. BP ATLANTIS: DEFENDANTS CONCEAL REPEATED WARNINGS ASSOCIATED WITH THEIR GULF OF MEXICO OPERATIONS.... 58 2. ADDITIONAL INCIDENTS PROVIDED RED FLAG WARNINGS OF IDENTICAL RISKS TO THOSE OF THE DEEPWATER HORIZON 64 3. BP’S LEASE, DESIGN AND DRILLING OF THE MACONDO WELL. 65 a. The Macondo Site. 65 b. The Macondo Well Design. 67 c. Drilling the Macondo Well. 68 d. Departures from Normal Procedures in Drilling the Macondo Well 70 1. Long String Casing Versus a Liner 70 2. A Lack of Centralizers. 72 3. Cement Fill and Cement Testing 75 4. Testing Leading Up To Temporary Abandonment. 80 5. Temporary Abandonment Procedures 83 6. Failure to Detect the Kick. 86 7. Failure of the Blowout Preventer. 87 4. DEEPWATER HORIZON EXPLOSION 89 G. INTERNAL DOCUMENTS AND TESTIMONY CONFIRM BP CONCEALED COST-CUTTING RISKING LIVES AND THE ENVIRONMENT. 91 1. DEEPWATER HORIZON’S TATTERED SAFETY AND MAINTENANCE RECORD. 96 iii Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 5 of 150 2. PRESIDENTIAL COMMISSION FINDS BP LACKED SUFFICIENT SAFETY PROCESSES AND IMPROPERLY ELEVATED PROFITS OVER SAFETY. 98 3. GOVERNMENTAL TESTIMONY CONFIRMS BP’S CONCEALED CORPORATE ETHOS OF PROFITS OVER SAFETY. 101 4. THE NATIONAL ACADEMY OF ENGINEERING NATIONAL RESEARCH COUNCIL AND DEEPWATER HORIZON STUDY GROUP CONFIRM THAT BP RECKLESSLY ELEVATED PROFITS OVER SAFETY. 105 5. INDUSTRY PEERS CONFIRM THAT BP’S SAFETY AND RISK MANAGEMENT PROCESSES WERE BELOW INDUSTRY STANDARDS 106 H. ADDITIONAL EVIDENCE OF BP’S CONCEALED GULF OPERATIONAL PROBLEMS 107 1. BP CONCEALED THAT SAFETY PROCESSES HAD YET TO BE IMPLEMENTED IN THE GULF OF MEXICO. 107 2. EXPERTS AND CONFIDENTIAL WITNESSES CONFIRM THAT, CONTRARY TO ITS REPRESENTATIONS, BP FAILED TO IMPLEMENT SAFETY OPERATIONS IN THE GULF OF MEXICO 111 VI. MISREPRESENTATIONS AND OMISSIONS DURING THE SUBCLASS PERIOD . 113 A. 2008 FORM 20-F ANNUAL REPORT. 113 B. MARCH 10, 2009 INITIAL EXPLORATION PLAN. 119 C. MARCH 25 2009 HOWARD WEIL ENERGY CONFERENCE. 121 D. NOVEMBER 19, 2009: STATEMENTS TO THE SENATE ENERGY AND NATURAL RESOURCES COMMITTEE 122 E. 2009 ANNUAL REVIEW . 127 1. SVANBERG STATEMENTS. 127 iv Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 6 of 150 2. HAYWARD STATEMENTS 127 3. INGLIS STATEMENTS 129 4. COMPANY STATEMENTS. 130 F. MARCH 2, 2010 STRATEGY PRESENTATION 131 G. 2009 FORM 20-F ANNUAL REPORT . 136 H. MARCH 22, 2010 HOWARD WEIL CONFERENCE. 141 I. CODE OF CONDUCT. 143 J. 2009 SUSTAINABILITY REVIEW 144 K. 2009 SUSTAINABILITY REPORT 148 VII. LOSS CAUSATION. 153 VIII. SCIENTER ALLEGATIONS . 155 A. BASED ON THEIR CORPORATE ROLE AND MEMBERSHIP TO KEY BOARD COMMITTEES, INDIVIDUAL DEFENDANTS HAD KNOWLEDGE OF BP’S CONCEALED GULF OF MEXICO SAFETY PROBLEMS 157 1. SAFETY, ETHICS, AND ENVIRONMENT ASSURANCE COMMITTEE . 157 2. GROUP OPERATIONS RISK COMMITTEE 158 3. BP’S INTERNAL REPORTING STRUCTURES MANDATED THAT GULF SAFETY PROBLEMS REACHED THE EXECUTIVE AND BOARD LEVEL. 159 B. DEFENDANTS KNOWINGLY OR RECKLESSLY DISREGARDED FACTS THAT BELIED THEIR STATEMENTS CONCERNING THE SAFETY OF THEIR GULF OPERATIONS. 161 C. CONFIDENTIAL WITNESSES AND GOVERNMENTAL INVESTIGATIONS PROVIDE AN ADDITIONAL INFERENCE OF SCIENTER. 167 IX. PRESUMPTION OF RELIANCE 167 X. INAPPLICABILITY OF THE STATUTORY SAFE HARBOR 168 v Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 7 of 150 XI. CLAIMS FOR RELIEF. 169 COUNT I. VIOLATION OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE 10b-5 PROMULGATED THEREUNDER. 169 COUNT II. VIOLATION OF SECTION 20(a) OF THE EXCHANGE ACT (Against the Individual Defendants). 172 XII. PRAYER FOR RELIEF 174 XIII. JURY TRIAL DEMAND . 175 vi Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 8 of 150 Plaintiffs Robert H. Ludlow, Peter D, Lichtman, Leslie J. Nakagiri, and Paul Huyck individually and as the Court-appointed Lead Plaintiffs on behalf of the Subclass described below (“Plaintiffs”) bring this action for damages against Defendants BP, plc and BP America, Inc. (collectively referred to as “BP”), as well as Defendants Anthony Hayward, Andy Inglis, Carl-Henric Svanberg, H. Lamar McKay, William Castell, Paul Anderson, Antony Burgmans, Cynthia Carroll, and Erroll B. Davis, Jr. (collectively referred to as the “Individual Defendants”) for violation of the United States federal securities laws. Plaintiffs allege the following based upon the investigation of Plaintiffs and their counsel, which included, among other things: • interviews of confidential witnesses, including senior officials within risk management operations in the Gulf; • interviews of former BP employees and consultants; • interviews of industry experts on risk management practices; • investigation reports by the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling (“Presidential Commission”); • investigation reports by the National Academy of Engineering (“NAE”) and the National Research Council (“NRC”); • investigation reports by the U.S. Chemical Safety and Hazard Investigation Board; • investigation reports by the Deepwater Horizon Study Group; • testimony and documents produced to the U.S. House of Representatives Subcommittee on Oversight and Investigations, the Committee on Energy and Commerce, the U.S. Coast Guard and the Mineral Management Service; • testimony and documents produced in In Re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010 , MDL No. 2179 (E.D. La.); • public statements and filings with the U.S. Securities and Exchange Commission (“SEC”) by officers and representatives of BP; and • reports, press releases and media reports. 1 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 9 of 150 I. INTRODUCTION “ Our commitment to safe, reliable and responsible operations starts with the group chief executive Tony Hayward and his leadership team : a commitment that filters down through the organization and is regularly communicated to all staff.” 2009 BP Sustainability Report, April 15, 2010 (five days before the Deepwater Horizon explosion) “There is a complete contradiction between BP's words and deeds . You were brought in to make safety the top priority of BP, but under your leadership, BP has taken the most extreme risks. BP cut corner after corner to save a million dollars here, a few hours or days there, and now the whole gulf coast is paying the price .” Chairman, U.S. House of Representatives Subcommittee on Oversight and Investigations, Committee on Energy and Commerce, June 15, 2010. 1. This is an action on behalf of a proposed Subclass of investors who purchased securities in BP, plc (“BP”), including American Depository Receipts (“ADRs”), between March 4, 2009 and April 20, 2010 (the “Subclass Period”), and who suffered losses following the catastrophic explosion to BP’s oil drilling rig in the Gulf of Mexico. As described herein, BP and its most senior executives repeatedly represented – both in SEC filings, public statements, and documents filed with government regulators – that it was committed to safe operations in the Gulf of Mexico, and had implemented internal risk management practices to reduce the Company’s exposure. These representations were untrue, and the catastrophic consequences are now manifest in the sullied waters and beaches of the Gulf, the decimated businesses operated by Gulf residents, and the massive losses suffered by BP investors. 2. Deepwater oil drilling is dangerous, technologically complex and expensive. Human errors are unavoidable. As such, oil companies like BP must insure that appropriate safety processes are in place to account for human fallibility.