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

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 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

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, . 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

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1. BP ATLANTIS: DEFENDANTS CONCEAL REPEATED WARNINGS

ASSOCIATED WITH THEIR 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. 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

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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

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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

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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

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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.

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I.

INTRODUCTION

“ Our commitment to safe, reliable and responsible operations starts with the group

chief executive 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. Without appropriate safety

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processes to check and balance independent decisions, such as a failure to verify cement

composition or the selection of a particular casing, such companies are highly exposed since

drilling accidents can have devastating consequences – both on the environment and the

Company’s operations and financial condition.

3. Accordingly, BP’s safety and risk management practices were highly material to

its investors, particularly during the Subclass Period, which followed a series of high profile BP

accidents, including the Texas oil refinery explosion in Texas City in 2005, and the Prudhoe Bay

Oil Spill in 2006. Following the Texas City refinery disaster, former U.S. Secretary of State

James A. Baker, III chaired a panel that found “systemic” failures in BP’s safety procedures:

“from the top of the company, starting with the Board and going down . . . BP has not provided

effective process safety leadership and has not adequately established process safety as a core

value.”

4. In 2007, following these incidents, BP reorganized its leadership structure and

represented that the Company was now focused “like a laser on safe and reliable operations,”

particularly in the Gulf. BP touted to investors that it had successfully implemented top quality

safety mechanisms to prevent catastrophic accidents going forward, and actively monitored and

managed operational risk in order to reduce exposure.

5. BP also publicly published certain internal policies relating to its safety measures

and risk management. For example, BP’s Code of Conduct, which was made available

publically on its website, contained a section entitled, “Health, safety, security and the

environment,” stating:

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At BP our aspirations are - no accidents, no harm to people and no

damage to the environment.

We are committed to the protection of the natural environment, to the safety of the

communities in which we operate, and to the health, safety and security of our people.

Everyone who works for BP, everywhere, has a responsibility for getting HSSE right.

6. Similarly, in its 2009 Annual Report on Form 20-F, which was issued on March

5, 2010, a month prior to the Deepwater Horizon disaster, BP stated that:

“Safety, people and performance are BP’s top priorities. We constantly seek to

improve our safety performance through the procedures, processes and training

programmes that we implement in pursuit of our goal of ‘no accidents, no harm to people and no damage to the environment.’”

7. Unfortunately, while BP touted its ability to safely explore the deepwaters of the

Gulf of Mexico, and reassured the public that its robust risk management practices protected the

Company in the event of any accident, BP’s officers and directors were aware of serious and

systemic safety issues in the Company’s Gulf operations. As described herein, and supported by

testimony of BP employees 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.) and confidential witness interviews, BP’s

Gulf drilling operations – which BP officers and directors were routinely kept informed of

through the Company’s mandatory internal reporting mechanisms – represented a powder keg

ready to blow.

8. Specifically, at the same time BP was reassuring the market, senior executives

were told of widespread safety problems in its Gulf operations. E-mails, audits, and other

documents presented to BP senior management discussed serious problems at the Deepwater

Horizon and its sister oil rig, the Atlantis. BP managers on the Deepwater Horizon itself were

issuing orders to move faster at the expense of safety. The Deepwater Horizon explosion was not

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the result of unforeseeable forces, but rather the predictable outcome of BP’s intentional decision

to disregard repeated warnings.

9. Put simply, the story spun by BP to outside investors was far different from the

reality of its internal operations. By touting the growth potential of its Gulf of Mexico

operations, beginning in March of 2009, and highlighting the safety of the operations, BP

convinced investors, including Plaintiffs, that BP would be able to generate tremendous growth

with minimal risk. However, BP was misleading the investing public.

10. On May 21, 2010, President Obama established the National Commission on the

BP Horizon Oil Spill and Offshore Drilling (“Presidential Commission” or “Commission”). The

purpose of the Commission was, in part, to examine relevant facts and circumstances concerning

the root causes of the Deepwater Horizon explosion. The Commission held meetings from July

through December of 2010, taking statements, reports and presentations from numerous

individuals and experts. On January 11, 2011 the Commission released its Final Report to the

President, entitled Deepwater: The Disaster and the Future of Offshore Drilling 1 (hereinafter referred to as “Pres. Comm. Report”) . The Commission found that BP repeatedly

placed profits over safety and lacked any process by which safety decision making could be performed on BP’s offshore rigs.

11. Similarly, the National Academy of Engineering and National Research Council

(“NAE”) concluded that BP “lack[ed] . . . a suitable approach for anticipating and managing the

inherent risks, uncertainties and dangers associated with deepwater drilling operations” and

“fail[ed] to learn from previous near misses.” The truth was that BP was cutting corners and

1 http://www.oilspillcommission.gov.

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reducing its spending on safety measures in an effort to maximize profits in the Gulf of Mexico.

Indeed, it was not until April 20, 2010, after the explosion, that material information began to emerge about BP’s safety measures.

12. The April 20, 2010 disaster was a predictable outcome, at least within BP’s

offices. For years, BP had been engaged in systematic and draconian cost-cutting maneuvers in

order to improve profits. In making those cuts, BP sacrificed safety, choosing to cut corners

instead of ensuring that its oil exploration and production business did not cause injury or harm

to their own employees, the public, and the fragile Gulf Coast environment. There is no dispute

that appropriate safety processes present at BP’s peers could have prevented the blowout on the

Deepwater Horizon.

13. BP hid the fact that its safety procedures were deficient, both overall and specific

to operations in the Gulf of Mexico. For example, BP’s Gulf leases had been the sites of spills

and accidents during the year before the disaster on April 20, 2010. BP did not disclose any of

these facts and indeed, concealed them from the investing public. Plaintiffs believe that

additional information about BP’s safety protocols, both in general and relating specifically to its

Gulf operations were concealed and not disclosed to the public.

14. Following the explosion, BP’s securities plummeted in value. The losses are

directly related to the materialization of the risks created by BP’s misleading statements and

assurances about its core operations. The impact of these assurances on BP’s security prices is

readily reflected by the market’s reaction following the explosion, when the truth became known.

15. For example, as the following chart demonstrates, BP’s ADR share price grew

steadily after the March 4, 2009 Annual Report was issued by BP, touting the growth potential of

oil operations in the Gulf of Mexico and BP’s supposed “top priority” of safety to protect the

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company’s exposure to risk. By April 20, 2010, the day of the Deepwater Horizon explosion,

BP’s ADR shares closed at $59.49 a share. However, immediately following the April 20

explosion, and continuing during the weeks of subsequent corrective disclosures, BP’s market

capitalization collapsed as its shares plummeted.

II.

THE PARTIES

A. PLAINTIFFS

16. Plaintiff Robert H. Ludlow, Jr. is a citizen of California. Ludlow purchased BP

ADRs on January 4, 2010 in reliance on BP’s statements and would not have purchased these

ADRs had he known BP’s actual safety and risk management practices. Ludlow and other

Subclass members similarly situated have been damaged as a result of Defendants’ securities fraud.

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17. Plaintiff Peter D. Lichtman is a citizen of California. Lichtman purchased BP

ADRs on July 1, 2009, July 20, 2009, October 1, 2009, December 29, 2009, and January 19,

2010 in reliance on BP’s statements and would not have purchased these ADRs had he known

BP’s actual safety and risk management practices. Lichtman and other Subclass members similarly situated have been damaged as a result of Defendants’ securities fraud.

18. Plaintiff Leslie J. Nakagiri is a citizen of California. Nakagiri purchased BP

ADRs on April 12, 2010 in reliance on BP’s statements and would not have purchased these

ADRs had he known BP’s actual safety and risk management practices. Nakagiri and other

Subclass members similarly situated have been damaged as a result of Defendants’ securities fraud.

19. Plaintiff Paul Huyck is a citizen of California. Huyck purchased BP ADRs on

April 7, 2010 in reliance on BP’s statements and would not have purchased these ADRs had he

known BP’s actual safety and risk management practices. Huyck and other Subclass members similarly situated have been damaged as a result of Defendants’ securities fraud.

20. Plaintiffs and other Subclass members purchased BP securities in the open

market, unaware that Defendants’ statements and omissions regarding BP’s safety records were

false and/or misleading and were causing BP’s stock price to be artificially inflated. Plaintiffs

and the Subclass relied upon Defendants’ statements and omissions in BP’s public reports, press

releases, and SEC filings when they purchased BP securities and were thus injured by the

Defendants’ actions. Plaintiffs and the Subclass further relied on the integrity of the market for

BP securities and the fact that BP securities were fairly priced. As a result, Plaintiffs and each

Subclass member have been injured.

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B. DEFENDANTS

1. CORPORATE DEFENDANTS

21. Defendant BP, plc (“BP”) is a public limited company formed under the laws of

the United Kingdom with its principal place of business in the United Kingdom. During the

Subclass Period, BP had a little under 19 billion shares outstanding. BP securities trade in an

efficient market.

22. Defendant BP America, Inc. (“BP America”) is a Delaware corporation with its

principal place of business in Warrenville, Illinois. BP America is a subsidiary of BP, plc and

conducts substantial business in the State of Texas, including leasing and operating the

Deepwater Horizon.

23. There is a unity of interest and ownership between BP and BP America such that

the acts of the one are for the benefit and can be imputed as the acts of the other. Hereinafter,

BP, plc and BP America, Inc. are jointly referred to as “BP.”

2. INDIVIDUAL DEFENDANTS

24. Defendant Anthony B. Hayward (“Hayward”) was the Chief Executive Officer

and a member of the Board of Directors during the Subclass Period. Before becoming Chief

Executive Officer in 2007, Hayward, who joined BP in 1982, served as the Chief Executive

Officer of Exploration and Production from 2002 to 2007 and as an Executive Director since

2003. Hayward served on the Group Operations Risk Committee (“GORC”) and was the

executive liaison to the Safety Ethics & Environment Assurance Committee, (“SEEAC”), which

is responsible for ensuring that BP’s safety protocols are implemented and followed. GORC was

expressly charged with reviewing and analyzing safety incidents in BP’s operations and reporting

to SEEAC.

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25. Hayward received a salary, performance bonus, and other benefits in the amounts

of $4,000,000 in 2008 and $5,100,000 in 2009. Hayward also received a severance package of

approximately $20,000,000 when he was removed from the role of CEO. Hayward is a citizen of

the United Kingdom. By virtue of his position, operational and management control, and

systematic involvement in the fraudulent scheme, he had the power to influence and control, and

did influence and control, directly and indirectly, the decision-making and actions of BP,

including the content and dissemination of the various statements which Plaintiffs contend are

misleading.

26. Defendant Andy G. Inglis (“Inglis”) was an Executive Director and the Chief

Executive of Exploration and Production (“E&P”) during the Subclass Period. Inglis worked for

BP in various capacities since 1980 and served as an Executive Director and E&P Chief from

2007 through July 2010. As chief executive of BP E&P, Inglis attended meetings of the BP

Board’s Safety, Ethics and Environment Assurance Committee to report on topics specific to the

BP exploration and production. During the relevant time period, Inglis also served as a GORC

member. By virtue of his position, operational and management control, and systematic

involvement in the fraudulent scheme, he had the power to influence and control, and did

influence and control, directly and indirectly, the decision-making and actions of BP, including

the content and dissemination of the various statements which Plaintiffs contend are misleading.

27. Inglis received compensation in the amount of $3,300,000 in 2008 and $3,500,000

in 2009. Inglis is a British national with extensive contacts with the U.S. over the past decade,

including his work as the Chief Executive of BP Exploration and Production from 2007 until

October 31, 2010 and, before then, his oversight of BP’s operations in the Gulf of Mexico.

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28. Defendant Carl-Henric Svanberg (“Svanberg”) is the Chairman of the Board of

Directors. He was appointed a Non-Executive Director of BP in September 2009 and became

Chairman in January 2010. Svanberg also heads the Chairman’s Committee and is a member of

BP’s Nomination Committee. Svanberg is a citizen of Sweden and travels to and from the United

States. By virtue of his position and operational and management control of the committee and

systematic involvement in the fraudulent scheme, he had the power to influence and control, and

did influence and control, directly and indirectly, the decision-making and actions of BP,

including the content and dissemination of the various statements which Plaintiffs contend are

misleading.

29. Defendant H. Lamar McKay (“McKay”) is Chairman and President of BP

America, Inc. In 1980, McKay started with , which was acquired by BP in 1998,

occupying a variety of positions until being appointed to his current roles in 2009. McKay is a

citizen of Texas. By virtue of his position, operational and management control, and systematic

involvement in the fraudulent scheme, he had the power to influence and control, and did

influence and control, directly and indirectly, the decision-making and actions of BP, including

the content and dissemination of the various statements which Plaintiffs contend are misleading.

30. Defendant William Castell (“Castell”) is the chairman of BP’s Safety, Ethics and

Environment Assurance Committee. Castell joined BP’s Board of Directors in 2006. By virtue

of his position and operational and management control of the committee and systematic

involvement in the fraudulent scheme, he had the power to influence and control, and did

influence and control, directly and indirectly, the decision-making and actions of BP, including

the content and dissemination of the various statements which Plaintiffs contend are misleading.

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31. Defendant Paul Anderson (“Anderson”) is a member of BP’s Safety, Ethics and

Environment Assurance Committee. Anderson joined BP’s Board of Directors on February 1,

2010. By virtue of his position and operational and management control of the committee and

systematic involvement in the fraudulent scheme, he had the power to influence and control, and

did influence and control, directly and indirectly, the decision-making and actions of BP,

including the content and dissemination of the various statements which Plaintiffs contend are

misleading.

32. Defendant Antony Burgmans (“Burgmans”) is a member of BP’s Safety, Ethics

and Environment Assurance Committee. Burgmans joined BP’s Board of Directors in 2004. By

virtue of his position and operational and management control of the committee and systematic

involvement in the fraudulent scheme, he had the power to influence and control, and did

influence and control, directly and indirectly, the decision-making and actions of BP, including

the content and dissemination of the various statements which Plaintiffs contend are misleading.

33. Defendant Cynthia Carroll (“Caroll”) is a member of BP’s Safety, Ethics and

Environment Assurance Committee. Carroll joined BP’s Board of Directors in 2007. By virtue

of her position and operational and management control of the committee and systematic

involvement in the fraudulent scheme, she had the power to influence and control, and did

influence and control, directly and indirectly, the decision-making and actions of BP, including

the content and dissemination of the various statements which Plaintiffs contend are misleading.

34. Defendant Erroll B. Davis, Jr. (“Davis”) was a member of BP’s Safety, Ethics

and Environment Assurance Committee and Audit Committees until stepping down from the

Board on April 15, 2010. Davis joined BP’s Board of Directors in 1998. By virtue of his

position and operational and management control of the committee and systematic involvement

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in the fraudulent scheme, he had the power to influence and control, and did influence and

control, directly and indirectly, the decision-making and actions of BP, including the content and

dissemination of the various statements which Plaintiffs contend are misleading.

35. The individuals identified above are hereinafter collectively referred to as the

“Individual Defendants.” Because of their positions with BP, these Individual Defendants

possessed the power and authority to control the contents of BP’s reports to the SEC, press

releases and presentations to securities analysts, money and portfolio managers, i.e. the market.

Each defendant was provided with copies of BP’s reports, presentations and press releases

alleged herein to be misleading prior to, or shortly after, their issuance and had the ability and

opportunity to prevent their issuance or cause them to be corrected. Because of their positions

and access to material non-public information available to them, each of these defendants knew

that the adverse facts specified herein had not been disclosed to, and were being concealed from

the public, and that the positive representations which were being made were then materially

false and misleading.

C. UNNAMED PARTICIPANTS

36. Numerous individuals and entities participated actively during the course of and in

furtherance of the scheme described herein. The individuals and entities acted in concert by joint

ventures and by acting as agents for principals, in order to advance the objectives of the scheme

to benefit Defendants and themselves to the detriment of Plaintiffs and the Subclass.

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III.

JURISDICTION AND VENUE

A. JURISDICTION AND VENUE

37. Plaintiffs assert claims under Section 10(b) and 20(a) of the Exchange Act, (15

U.S.C. §§ 78(j)(b) and 78(t)(a)), and Rule 10b-5 promulgated thereunder. The Court has

jurisdiction over the subject matter of this action pursuant to Section 27 of the Exchange Act (15

U.S.C. §78aa) and 28 U.S.C. § 1331.

38. Venue of this action in this Court is proper pursuant to Section 27 of the

Exchange Act, 15 U.S.C. § 78aa and 28 U.S.C. § 1391(b) because the Defendants resided,

transacted business, were found, or had agents in this District. Venue is also proper in this

District because the Judicial Panel on Multidistrict Litigation ordered this action centralized in

this District.

39. Defendants, directly and/or indirectly, used the means and instrumentalities of

interstate commerce, the United States mails, and the facilities or the national securities markets

in connection with the acts, conduct, and other wrongs complained of herein.

40. Each Defendant has sufficient minimum contacts within Texas to make the

exercise of jurisdiction over each Defendant by the federal courts in Texas consistent with

traditional notions of fair play and substantial justice. Each Corporate Defendant transacts

business, has an agent, and/or is found within the State of Texas and the unlawful conduct

alleged in this complaint was carried out and had effects in the State of Texas. Each Individual

Defendant made statements which were directed at the United States, including Texas, were

control persons who approved the filing and/or dissemination of forms required by the Securities

& Exchange Commission, and/or performed other acts which were directed towards the United

14 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 22 of 150

States, including Texas, and which they knew would have a cause and effect on the price of BP securities.

B. CAUSE AND EFFECT IN THE UNITED STATES

41. BP has extensive United States and Texas operations, many of BP’s shareholders

are in the United States, and the site of the wrongdoing occurred in substantial part in this

District.

42. As BP’s former CEO, Hayward, told the Houston Forum on November 8, 2007:

“America – and Americans – [are] the greatest single part of BP.”

43. BP’s relationship to the United States is highlighted by the following:

• 39 percent of BP’s worldwide shareholders reside in the United States.

• BP has approximately 34,000 employees in the United States, one third of

its total worldwide employees and more than in any other country.

• BP produces more crude oil in the United States than in any other country.

• BP produces more natural gas in the United States than in any other

country.

• BP’s capital expenditures in the United States are larger than in any other

country, and BP has more operating capital employed in the United States

than in any other country.

• 45% of BP’s proved oil reserves are in the United States.

• BP is the second largest gasoline retailer in the United States.

• BP’s single largest division – BP America – is incorporated in Delaware

and has its headquarters in Houston.

15

Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 23 of 150

• BP’s operations in Texas and the Gulf of Mexico are the most significant

part of BP’s operations in the world.

IV.

SUBCLASS ACTION ALLEGATIONS

44. This action is brought by Plaintiffs, individually, and on behalf of a Subclass of all

others similarly situated, for the allegedly wrongful acts of the Defendants. Plaintiffs bring this

action pursuant to Federal Rule of Civil Procedure 23. The Subclass is defined as followed:

All persons and entities who, during the Subclass Period from March 4, 2009

(the date of BP’s 2008 Annual Form 20-F) through April 20, 2010, purchased shares in BP securities, including American Depository Receipts (“ADR”).

Excluded from the Subclass are Defendants herein, members of their

immediate families and their legal representatives, parents, affiliates, heirs,

successors or assigns and any other person who engaged in the improper

conduct described herein (the “Excluded Persons”).

45. Plaintiffs seek to recover damages for themselves and the Subclass under the

federal securities laws.

46. Numerosity of the Subclass – Federal Rule of Civil Procedure 23(a)(1). The

Subclass is so numerous that joinder of all members is impracticable. BP is a publically traded

security with a little under 19 billion outstanding shares. Nearly half of the shareholders of BP

are American citizens. While the exact number of Subclass members is unknown at this time,

Plaintiffs are informed and believe that the number is in the hundreds of thousands, at a

minimum.

47. Existence and Predominance of Common Questions of Law and Fact –

Federal Rule of Civil Procedure 23(a)(2) and 23(b)(3). Common questions of law and fact exist

16 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 24 of 150

as to all Subclass members and predominate over questions affecting only individual Subclass

members. These common questions include:

(a) Whether Defendants’ acts alleged herein violated federal securities laws; and

(b) Whether Plaintiffs and members of the Subclass were damaged, and the

appropriate measure of damages.

48. Typicality – Federal Rule of Civil Procedure 23(a)(3). Plaintiffs’ claims are

typical of the claims of other members of the Subclass in that Plaintiffs and other Subclass

members were all injured as a result of the misconduct of the Defendants. Plaintiffs are

members of the Subclass they seek to represent and have suffered harm due to the misleading and

fraudulent statements and omissions of material facts by Defendants.

49. Adequacy of Representation – Federal Rule of Civil Procedure 23(a)(4) and

23(g)(l). Plaintiffs will fairly and adequately represent the interests of the Subclass; their

interests are coincident with, and not antagonistic to those of the Subclass they seek to represent.

Plaintiffs are represented by experienced and able attorneys, who intend to prosecute this action

vigorously for the benefit of Plaintiffs and all Subclass members. Plaintiffs and their counsel

will fairly and adequately protect the interests of the Subclass members.

50. Proper Maintenance of Subclass – Federal Rule of Civil Procedure 23(b)(2)

and (c). Defendants have acted or refused to act, with respect to some or all issues presented in

this Complaint, on grounds generally applicable to the Subclass, thereby making it appropriate to provide relief with respect to the Subclass as a whole.

51. Superiority – Federal Rule of Civil Procedure 23(b)(3) and (c). An action on

behalf of a Subclass is the best available method for the efficient adjudication of this litigation

because individual litigation of Subclass members’ claims would be impracticable and unduly

17 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 25 of 150

burdensome to the courts, and have the potential to result in inconsistent or contradictory

judgments. There are no unusual difficulties likely to be encountered in the management of this

litigation as a class action. A class action presents fewer management problems and provides the

benefits of single adjudication, economies of scale and comprehensive supervision by a single

court.

V.

FACTUAL ALLEGATIONS

A. BP’S RAPID GROWTH: ACQUISITIONS AND DEEP SEA EXPLORATION OF

THE GULF OF MEXICO

52. BP was founded as the Anglo Persian Oil Company in 1909 and is now one of the

world’s largest oil and gas companies. BP engages in every area of the oil and gas industry,

including exploration and production, refining and distribution. During fiscal year 2009, BP’s

business generated $246 billion in revenues and over $16 billion in profit. BP is now the single

largest producer of oil and gas in the United States.

53. BP’s emergence as a global power arose under the tenure of former CEO, Lord

John Browne. In 1989, Browne, who was then head of BP exploration and development,

assigned ten geologists, including Defendant Hayward, to develop a new strategy to find oil.

Deepwater wells in the Gulf of Mexico, while technologically complex and geologically

demanding, were particularly promising to BP. 2

2 Peter Elkind and David Whitford, BP: An Accident Waiting to Happen (Fortune,

January 24, 2011).

18 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 26 of 150

54. This new focus was particularly attractive, according to Browne, since the “costs 3 would be lower per barrel for big fields.”

55. The inaccessibility and technological difficulty of the “new exploration” plan

required substantial capital commitment. Drilling a deepwater well can cost as much as $200

million.4 Accordingly, BP needed access to greater capital.

56. In 1998, BP entered into a $110 billion “merger of equals” with Amoco, and the

combined company purchased the Atlantic Richfield Company (“Arco”) to become the third

largest oil company in the world. Amoco was targeted, in part, because of its sizeable Gulf of 5 Mexico assets.

57. After the ARCO merger was announced, Browne stated, “We’ll be the largest 6 producer of oil in the non-OPEC world.” This was not just bluster as BP’s corporate value

quadrupled in value as BP became a huge global competitor almost overnight.

58. Following the mergers, BP embarked on an aggressive campaign of exploring,

developing and increasing (through the acquisition of regional leases) its Gulf assets.

59. Exploration and production involves the use of heavy industrial equipment to drill

and access oil in deep water. Deepwater drilling is not only expensive but, as described in

3 John Browne, Beyond Business, An Inspirational Memoir From a Visionary Leader

(The Orion Publishing Group, Ltd., 2010), Pg. 60.

4 Russell Gold, BP’s Find Cements Gulf’s Revival , (Wall Street Journal, Sept. 3,

2009).

5 Aug. 11, 1998 BP Press Release available at

http://www.bp.com/genericarticle.do?categoryId=2012968&contentId=2006699

6 Abrahm Lustgarten, Furious Growth and Cost Cuts Led to BP Accidents Past and

Present (ProPublica Oct. 26, 2010).

19 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 27 of 150

greater detail below, the technological risks of drilling thousands of feet below sea level are

enormous.

1. THE CHALLENGES OF DEEPWATER OIL DRILLING IN THE GULF

OF MEXICO

60. New technologies have allowed offshore drilling to probe deeper and deeper into

the Earth’s crust to tap previously unreachable natural resources. However, creating and

maintaining those deeper wells also comes with unprecedented levels of risks. As near-shore

reserves depleted and exploration technology improved, drilling moved farther offshore, into

deeper waters and deeper into the sand and rock below those waters. The conditions in which

this drilling happens are extreme and the challenges are formidable. '

61. Drilling a deepwater well involves stringing equipment and steel from a floating

oil rig through water, sand and rock at variant pressures and temperatures and terminating at

depths of up to 20,000 feet below the seabed.

62. In creating an oil well, a drilling rig uses a drill string and bit that create a hole

approximately 36 inches (or three feet) in diameter. This whole narrows as it becomes deeper,

and the well is encased initially in steel and eventually in cement. The types of dangers that can

arise from drilling a well are numerous including, but certainly not limited to, puncturing a high

pressure pocket of gas or liquid, maneuvering pieces of steel that weigh more than one ton, and

starting oil fires, which are nearly impossible to control or put out.

63. The risks inherent in drilling any oil well increase greatly when the top and

bottom of the well are drilled further and further below surface of the water. The absence of

' John McQuaid, The Gulf of Mexico Oil Spill: An Accident Waiting to Happen , (Yale Environment 360, May 10, 2010).

20 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 28 of 150

adequate safety procedures have led to blowouts which predictably kill and injure workers,

damage equipment, and spill oil and gas into the environment. These risks have been well

known for decades, harkening back to a drilling disaster off the Santa Barbara, California Coast

in 1969, which dumped more than three million gallons of oil into the water and led to a 8 moratorium on offshore drilling in the United States.

2. STATUTES AND REGULATIONS RELEVANT TO OFFSHORE

DRILLING

64. Because of the dangers inherent in offshore drilling, the oil industry is subject to

expansive regulations regarding the safety of offshore drilling operations.

65. The Outer Continental Shelf Lands Act (“OCSLA”), enacted in 1953, provides the

foundation for federal regulation of offshore oil and gas development. OCSLA authorizes the

Department of Interior (“DOI”) to lease defined offshore areas for development and to formulate

regulations pertaining to offshore drilling and drilling safety as necessary.

66. From its inception, and at all relevant time periods, the Secretary of the Interior, 9 through the former Minerals Management Service [“MMS”], was the federal agency primarily

responsible for leasing, safety, environmental compliance, and royalty collections from offshore

drilling. In carrying out its duties, MMS subjected oil and gas activities to an array of

prescriptive safety regulations: hundreds of pages of technical requirements for pollution

prevention and control, drilling, well-completion operations, oil and gas workovers (major well

8 Jesus Sanchez, The oil spill that triggered the debate over offshore drilling, (L.A.

Times, June 18, 2008).

9 Recently renamed the Bureau of Ocean Energy, Management, Regulation and

Enforcement.

21 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 29 of 150

maintenance), production safety systems, platforms and structures, pipelines, well production,

and well-control and production safety training.

67. MMS also attempted to conduct both annual and periodic unscheduled

(unannounced) inspections of all offshore oil and gas operations to try to assess compliance with

those requirements. Agency officials have tried to meet the requirement for annual inspection of 10 the operations to prevent blowouts, fires, spills, and other major accidents.”

68. 30 C.F.R. § 250 et seq. governs drilling operations on the Outer Continental Shelf

(“OCS”) which includes BP’s Gulf of Mexico operations. Subpart B of 30 C.F.R. § 250.202

provides that a company must submit an Exploration Plan (“EP”), a Development and Production

Plan (“DPP”), and a Development Operations Coordination Document (“DOCD”) before any

drilling activities may be conducted on the offshore lease. Additionally, submitted plans “must

demonstrate that you have planned and are prepared to conduct the proposed activities in a

manner that . . . [i]s safe.” Even after MMS approval of the EP, the oil company must still secure

approval of its application for its permit to drill and approval of production safety systems. 30

C.F.R. §§ 250.281, 250.410 and 250.800.

69. 30 C.F.R. § 250.300 requires “(a) [d]uring the exploration, development,

production ... the lessee shall take measures to prevent unauthorized discharge of pollutants into

the offshore waters. The lessee shall not create conditions that will impose unreasonable risk to

public health, life, property, aquatic life, wildlife, recreation, navigation, commercial fishing, or

other uses of the ocean.”

10 Pres. Comm. Report, Pg. 68.

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70. Importantly, to protect health, safety, property, and the environment : (1) all

operations must be performed in a safe and workmanlike manner; (2) all equipment and work

areas must be maintained in a safe condition; (3) any hazardous oil or gas accumulations or other

health, safety or fire hazard must be immediately controlled, removed, or otherwise corrected;

and (4) best available and safest technology (BAST) must be used whenever practical on all

exploration, development and production operations. 30 C.F.R. § 250.107.

3. THE PROCESS OF FINDING AND DRILLING A DEEPWATER

OFFSHORE WELL

a. Searching for and Finding a Reservoir of Oil and Gas

71. Once a piece of land is leased, an offshore drilling rig must be set up in order to

locate what is known as a “trap” below the seabed. A trap is a reservoir of porous rock which is

filled with oil and/or gas. Oil forms deep beneath the Earth’s surface when organic materials

deposited in ancient sediments slowly transform due to the intense heat and pressure. These materials, known as “hydrocarbons,” are lighter than the rock and other fluids around them.

Therefore, they move upward toward the surface. When a layer (or many layers) or an

impermeable substance (such as sheets of rock or sediment) blocks the path of the hydrocarbons,

they collect in porous rock layers beneath that impermeable layer. The business of drilling for oil

consists of finding and tapping these areas. These areas are also referred to as the “Pay Sands,” or “Pay Zone.”

72. Locating potential traps requires the use of seismic surveying and advanced

technology. For example, BP believed and expected based on seismic surveys of the region that

the Pay Sands nearly 20,000 feet below sea level at the Macondo well would be large and very

23 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 31 of 150

profitable. However, it is difficult to know for certain whether a trap is accessible and possesses

useful and extractable oil and gas until an exploratory well is drilled.

73. The offshore drilling rig can be anchored in place in either of two ways. First, a

rig can be anchored with enormous mooring chains. Alternatively, a rig can be free floating and

dynamically positioned through satellite GPS technology and powerful thrusters to ensure that it

stays above the location of the well. These are known as dynamically positioned Mobile

Offshore Drilling Units, or “MODUs.” BP used two different drilling rigs at the Macondo well,

the Marianas, an anchored rig, and the Deepwater Horizon, a MODU. The first rig to drill at the

well was the Marianas, which was damaged during Hurricane Ida in November of 2009. 11 12 In

January of 2010, the Deepwater Horizon arrived and continued the work done by the Marianas.

74. Because Macondo was the first well in the plot of land, BP knew relatively little

about the geology. However, based on available data there was an indication that a large oil and

gas reservoir would warrant installing production equipment at the well. Thus, while the original

purpose of the well was exploratory, BP intended to extract the oil and gas approximately 20,000

feet below sea level and nearly 15,000 feet below the sea bed.

75. The well was designed as an “infrastructure-led development, meaning that the

exploration well was designed so that it could later be completed to be a production well” if a

sufficient reservoir was found. 13

11 The Marianas drilled for 34 days to a depth of just over 9,000 feet. It moved off-site

when Hurricane Ida was arriving, but was still damaged in the storm and subsequently replaced by the Deepwater Horizon.

12 Pres. Comm. Report, Pg. 92.

13 September 8, 2010 BP Deepwater Horizon Accident Investigation Report, Pg.16.

24 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 32 of 150

b. Drilling A Well

76. Once a location has been selected, the process for drilling a deepwater offshore

well begins. For wells such as Macondo, this is a multi-step, lengthy and complex process.

Most of the time, the workers and engineers on the rig cannot see what the drill bit is

encountering and rely solely on tangential measurements and information during the drilling

process.

77. Additionally, it is a process with virtually no margin for error. The well begins at

a diameter of approximately thirty-six inches. The deeper the well is drilled, the narrower the

hole becomes. Guiding the drill through rock and sand, more than one mile below where the

engineer sits, inside a hole less than three feet wide means that the smallest error can send the

drill askew and into unseen or potential pockets of gas or liquid.

78. Further, it is a multi-step process involving numerous people, materials and

stages. It involves drilling, multiple layers of gradually narrower steal casing, stabilizers, cement,

valves and safety mechanisms, all of which must be placed with exacting specificity under

conditions of extreme temperature and pressure far outside the perceptions of the people in

charge of guiding the drill and making decisions which can have catastrophic consequences.

79. These general risks are amplified when the geology of the area is relatively

unknown. Drillers use fluids (generally synthetic muds) in order to balance the pressure inside

the well with the pressure in the surrounding rocks. Drillers force fluids down the wellbore

following the drill. The mud cools and lubricates the drill and controls the pressure inside the

well. The weight of the column of mud exerts pressure which counterbalances the pressure in the

hydrocarbon formation.

25 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 33 of 150

80. This pressure must be balanced in two ways – “Pore Pressure” and “Fracture

Gradient.” Pore Pressure is the pressure exerted by fluids in the pore space of rock. If this

pressure is not balanced by the drilling fluids, hydrocarbons flow up into the well bore and can

cause unprotected sections of the well to collapse. This is known as a “kick.” A large “kick,” 14 allowing hydrocarbons to flow up the well in an uncontrolled manner, is called a “blowout.”

81. Fracture Pressure is the pressure at which the rock formations are no longer strong

enough to withstand the pressure of the drilling fluids. If the pressure exerted by the fluids is too

high, it will cause the surrounding formations to fracture. This causes the fluids to flow out of

the wellbore and into the rock formation instead of circulating back to the surface. This is known

as a “lost return” or “lost circulation” event. 15

82. The principal challenge in deepwater drilling is to drill a path to the Pay Zone in a

manner which simultaneously controls the enormous pressures inside the well and on the

geologic formation where the reservoir is found. Balancing the Pore Pressure while avoiding

fracturing the surrounding rock is a delicate, sensitive and highly technical task which requires

specialized equipment and the interpretation of data from environments which are extremely

difficult to operate in.

83. As the well gets deeper, drillers use “casing strings” to stabilize the wellbore.

These are a series of steel tubes which are installed to line the well as the drilling progresses.

They are installed so that the first string is the widest - approximately thirty-six inches, which

matches the original diameter of the well. However, as the well gets deeper, the strings are

14 Pres. Comm. Report, Pg. 90.

15 Id.

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inserted through the existing hole, meaning that each string is slightly smaller than the previous

one. At the bottom of the well, the hole is significantly narrower, allowing for less and less

margin of error the deeper the well goes. These strings protect the well from hydrocarbons

leaking into the wellbore and causing a kick or a blowout, as well as protecting the rock

formations outside the well from the pressure the drilling mud exerts against them from inside

the well. 16

84. Once the casing strings are in place and the well is drilled into the Pay Zone,

engineers begin running tests to determine whether the reservoir is viable. In order to be viable,

the reservoir must be of sufficient size and pressure to make it economically worthwhile to install

the “production casing” used to recover oil and gas from the well.

c. Preparing for Oil Extraction

85. There are multiple types of casings which can be cemented into place. The

original option at Macondo was to use a “long string” casing. This casing creates a continuous

wall of steel from the wellhead on the sea floor to the Pay Zone at the bottom of the well.

However, lost circulation events, the extremely fragile nature of Pay Zones, and the narrow range

of pressure which could create the appropriate balance inside and outside the well, often make

use of a long string impossible.

86. In such a case, the alternative is to use a “liner.” This is a much shorter casing

which is hung lower in the well and anchored to the next higher string. A liner is more complex,

and can be more leak-prone over the life of a well, but can be significantly easier to cement into

place. The installation of a casing (either a long string or a liner) requires crews to lower a tool

16 Pres. Comm. Report, Pg. 92.

27 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 35 of 150

from the rig floor all the way to the bottom of the well (in the case of Macondo, more than

18,000 feet down) and to assemble the casing section by section.

87. Prior to the installation of the casing, drillers install “centralizers” which are

critical components to ensuring a good cement job. The centralizer serves to stabilize the casing

in the center of the wellbore. The centralizers come in multiple forms - “subs” and “slip-ons.”

“Sub” centralizers screw securely into place between sections of casing. “Slip-on” centralizers

slide onto the exterior of a piece of casing and are usually secured by “stop collars” on either

side. The collars are either welded directly to the centralizers or supplied as separate pieces. If

the slip-on centralizers are supplied as separate pieces, there is a risk that they can slide out of

position or catch on other equipment as the casing is lowered.

88. After the centralizers are ready, the casing is lowered into place. This is done by

attaching a “shoe track” to the leading end of the casing. This begins with a bullet-shaped piece

of metal with three holes designed to help guide the casing down the hole. It is followed by a 17 length of narrow steel casing and then a “float collar.” The float collar is simply two valves

held up by a short tube through which the drilling liquid and mud in the well can flow. As the

casing string is lowered downward, the mud passes through the holes in the “shoe” and then 18 through the auto-fill tube which props open the “float collar.” This allows the mud in the well

to flow up the casing string as it is put into place.

89. Once the well is drilled and the production casing is in place, specialized blends

of cement are sent down the inside of the casing string. At the bottom of the string, the cement

17 September 8, 2010 BP Deepwater Horizon Accident Investigation Report, Pg. 69.

18 Id.

28 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 36 of 150

“turns the corner” and then moves up the “annular space” between the casing and the sides of the

open hole. If the casing is not directly in the center of the wellbore, the cement does not flow

evenly back up all sides of the casing. Because the cement pushes the drilling mud out of the

well (and eventually out of the wellbore) if the casing is not centered in the wellbore, the cement

will flow up the path of least resistance and can leave mud and debris which can severely

compromise a primary cement job and create paths and gaps which hydrocarbons can flow

upward.

90. The cement that is used in a cement job is a highly specialized “slurry.” The

slurry must be tested before it is used, and because the pressure and temperature at the bottom of

a well significantly alters the strength and curing rate of a slurry, this testing is generally done as

close to the start of a pumping job to ensure that the cement will behave as needed and expected

while at the bottom of the well.

91. The process involves sending cement down the well, followed by drilling mud and

then, determining when that cement has “turned the corner.” However, “even following best

practices, a cement crew can never be certain how a cement job at the bottom of the well is 19 proceeding as it is pumped.” Accordingly, crews must rely on other information like pressure

and volume readings. The crew knows how much cement and mud went down the well, and how

much pressure is exerted by the pumps to push that cement and mud, and uses that information to

determine whether the amount of mud being displaced is equal to the amount of mud and cement

sent down the well. Additionally, cement teams look for pressure spikes which confirm that

“wiper plus” have landed at the bottom of the well as expected and also look for a steady increase

19 Pres. Comm. Report, Pg. 99.

29 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 37 of 150

in pressure which demonstrates that the cement has turned the corner and is now being pushed up

the annular areas against gravity.

92. While these indicators suggest that a job has gone as planned, they “say little

specific about the location and quality of the cement at the bottom of the well.” Therefore, after 20 cementing, crews engage in pressure testing and “cement evaluation logging.”

93. Once the cement is cured (or set) it bonds to the rock formation and to the casing.

In theory, this seals off the annular space and isolates the Pay Zone from the annular space

around the casing and from the inside of the casing itself. This is known as the “primary” cement

job.

94. After the cement job is completed, the rig crew performs tests to determine if it

was successful. Once the pumps are turned off, the crews attempt to determine if the float valves

are closed and holding. The crew opens a valve at the end of the cementing unit and measures

how much fluid flows out of the well. There is an expectation that some will, but if the amount

is greater than the predicted amount it indicates that the cement is migrating back up the casing.

In addition to this measurement, the crews use cement evaluation tools to test the integrity of the

cement in the annular space around the casing. These tools primarily use acoustic signals.

However, the tools have important limits. They cannot evaluate the cement inside the “shoe” or

in the space below the flow valves, and are significantly more accurate when the cement is given

adequate time to cure.

20 Pres. Comm. Report, Pg. 99.

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d. Temporary Abandonment

95. Once the cement job is completed and tested, the final stage in preparing to

extract oil is called, “Temporary Abandonment.” This process is not always necessary, but when

a drilling rig the size (and cost) of the Deepwater Horizon is used, the oil company will bring in a

smaller rig to install collection and production equipment and to extract the oil from the well. In

order to make way for a new rig, the existing one must remove the “riser” and “blowout

preventer” (“BOP”) from the well head. The riser is the piping that connects the drilling rig at

the surface with the BOP.

96. The BOP is a crucial last line of defense for a drilling vessel and its workers if all

other attempts to balance well pressure and counter an influx fail, and the well begins to flow out

of control. The BOP functions as a safety mechanism designed to prevent the types of

explosions and disasters which occurred at the Macondo well. Each drilling rig has its own BOP.

97. The BOP is a stack of valves that, once in place, everything needed in the well

passes through. The BOP on the Deepwater Horizon was a four-hundred ton device that was

latched onto the wellhead on the sea floor. The BOP had several features which are designed to

seal the well. The top two were large rubber donuts called “annular preventers.” They encircle

the casing inside the BOP. When squeezed shut they seal off the space around the piping. The

BOP also had five sets of metal rams, including a “blind shear ram” which was designed to cut

through the drill pipe inside the BOP to seal off the well in case of an emergency. It was

designed so that it could be activated manually on the rig, through a remote operated vehicle or

through an automated “deadman system.” In addition to the “blind shear ram” there was also a

“casing shear ram” designed to cut through the casing, and three sets of pipe rams in place to

close off the space around the drill pipe.

31 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 39 of 150

98. Once the BOP is properly positioned and secured over the pilot hole, the drilling

apparatus and additional casing sections are lowered down through the BOP into the well, while a pipe called a “marine riser” connects the wellhead to the drilling vessel at the surface.

99. In the process of “temporary abandonment,” crews secure the well so that it can be

safely abandoned before removing the riser and BOP. There are four prominent features of

temporary abandonment. First, crews install a cement plug at the top of the casing. This is

designed to act as a backup for the cement at the bottom of the well. Second, the location of the

cement plug is placed at the “mud line.” At the Macondo well, this was planned to be placed

3,300 feet below the seabed, which was deeper than regulations allowed and deeper than usual. 21

Third, the crew determines the presence of seawater in the well below the sea floor. Crews

replace some of the mud in the wellbore above the cement plug with seawater, which is

significantly lighter and therefore alters the pressure pushing down on the mud and cement in the

casing leading down to the Pay Zone. Finally, the crews may install a “lockdown sleeve.” This

is a device that goes over the top of the well on the sea floor and is designed to keep the casing

from floating up out of the well.

100. In addition to these processes, crews also perform “positive pressure” and

“negative pressure” tests. The positive test assesses the integrity of the production casing. The

negative test assess the integrity of the well and bottom cement job to ensure that outside fluids

(hydrocarbons) are not leaking into the well.

21 Pres Comm Report, Pg. 103.

32 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 40 of 150

101. If the tests are completed and the cement plug and lockdown sleeve are put in

place, the rig can then move away from the well and leave it secured for the production rig to

begin extraction of oil.

B. BP’S CORPORATE STRATEGY OF DRACONIAN COST-CUTTING

102. In 1995, upon his promotion to CEO, Lord John Browne immediately instituted a

company-wide cost-cutting strategy, reducing budgets by 25% and cutting 6,000 jobs. “Safety

and maintenance expenditures were a significant portion of the cuts.” 22

103. BP’s cost-cutting would continue throughout Browne’s tenure as CEO. For

example, in 2004, Texas City refinery manager, Don Parus, was told to reduce the plant’s annual

operational budget of $300 million by $48 million. During this time, Texas City was BP’s most profitable refinery, generating $900 million in annual earnings. 23

104. BP’s cost cutting was implemented, among other ways, through “incentive” and

“bonus” programs for lower-level workers which had the guaranteed effect of cutting corners on

safety in order to get the job done more quickly. Rig workers were given bonuses if their

projects were completed at or before a targeted number of days. BP would also use this

information for employee performance evaluations, grading employees every year based on how

much money they saved the Company. 24

22 U.S. Chemical Safety and Hazard Investigation Board, Investigation Report Refinery

Explosion and Fire (15 killed, 180 injured) (“CSB”), at Pg. 159 (March 2007).

23 B.P. U.S. Refineries Independent Safety Review Panel Report (“Baker Report”)

(January 2007 ), at Pg. 83.

24 BP put profits over safety: An Editorial, ( Times-Picayune, Oct. 10,

2010).

33 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 41 of 150

C. BP’S HISTORY OF SAFETY LAPSES

105. Prior to 2007, BP experienced a number of catastrophic incidents. The

Company’s lengthy record of safety and environmental violations are attached as Exh. A . Four incidents are detailed below.

1. 2003: FORTIES ALPHA

106. On November 27, 2003, a gas line ruptured on BP’s Forties Alpha off

of the coast of Scotland. The gas line rupture was found to have been caused by corrosion. BP

admitted breaching U.K. health and safety regulations and was fined £200,000.

107. Oberon Houston was BP’s second in command on the Forties Alpha at the time of

the gas line rupture. Houston attributed the incident to BP’s strategy of promoting financial

performance over operational performance :

A continual focus on costs and an undoubted commercial savvy was not

complimented with similar expertise, or enthusiasm, for the nuts and bolts of the

job. Management listened intently to the views of market analysts, who knew

little about the technical detail of the oil business, but instead were driven by

quarterly results; encouraging and cheering on management’s relentless drive to

reduce costs . This resulted in a chronic short term view at the very top of the

company, obsession with performance metrics became the business for

management, not the informed outcome.

Engineers were regularly teased for wanting to “gold-plate everything”, or

reminded that “we are not building a Rolls Royce here”. It felt that senior

management in BP commonly thought we were more concerned about the

elegance of a solution rather than the costs involved, and therefore we were not

really trusted. These concerns were voiced at all levels, but found little understanding or sympathy. 25

25 Oberon Houston: Beyond – Events in the Gulf of Mexico affect us all, available at http://conservativehome.blogs.corn/platform/2010/06/oberon-houston.html#more, last visited February 8, 2011.

34 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 42 of 150

2. 2005: TEXAS CITY DISASTER

a. Background of the Texas City Disaster

108. On March 23, 2005, at 1:20 pm, the BP Texas City refinery suffered one of the

worst industrial disasters in recent US history. The explosions and fires killed 15 people and

injured another 180 and resulted in financial losses exceeding $1.5 billion. The blast occurred

during the startup of an isomerization unit (ISOM) when a raffinate splitter tower was overfilled;

pressure relief devices opened, resulting in a geyser like flammable liquid from a blowdown

stack that was not equipped with a flare. The release of the flammables caused an explosion and

fire. A shelter-in-place order was issued that required 43,000 people to remain indoors and

houses were damaged from as far as three-quarters of a mile from the refinery. The BP Texas

City facility is the third-largest refinery in the United States.

109. The ISOM startup procedure required that the level control valve on the splitter

tower be used to send the liquid from the tower to the storage. Findings show that this valve was

closed by an operator and the tower was filled for over three hours without any liquid being

removed. This led to flooding of the tower and high pressure which in turn activated relief

valves that discharged flammable liquid to the blowdown system. Some of the underlying

factors involved in overfilling the tower included:

• The tower level indicator showed that the tower level was declining when in fact

it was overfilling. The redundant high level alarm did not activate, and the tower was not equipped with any other type of safety device.

• The control board display did not provide adequate information on the imbalance

of flows in and out of the tower to alert the operators to the high levels of danger.

• A lack of supervision during the startup, and especially hazardous period, was an

omission contrary to BP’s safety guidelines. An extra board operator was not

assigned to assist, despite a staffing assessment that recommended an additional

board operator for all the ISOM startups.

35 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 43 of 150

• Supervisors and operators poorly communicated the critical information regarding the startup during the shift turnover.

• ISOM operators likely were fatigued from working 12-hour shifts for 29 or more consecutive days.

• The operator training program was inadequate. The central training department

staff had been reduced from 28 to 8, and simulators were unavailable for operators

to practice handling abnormal situations, including infrequent and high hazard operations such as startups and unit upsets.

• There were outdated and ineffective procedures that did not address the recurring

operational problems during the startup which led operators to believe that

procedures could be altered or did not have to be followed during the startup

process.

110. The process unit was also started despite the previously reported malfunctions of

the tower level indicator, level sight glass, and a pressure control valve. The findings also found

that the size of the blowdown drum was insufficient to contain the liquid sent to it by the pressure

relief valves. The blowdown drum overfilled and the stack vented flammable liquid to the

atmosphere, which then fell to the ground and formed a cloud that ignited. BP did not replace

the blowdown drums and atmospheric stacks even though a series of incidents warned that the equipment was unsafe.

111. In 1992, OSHA cited a similar blowdown drum and stack as being unsafe, but the

citation was withdrawn as part of a settlement agreement and therefore the drum was not

connected to a flare as was recommended. BP had safety standards requiring that blowdown

stacks be replaced with equipment, such as a flare, when major modifications were made. In

1997, a major modification replaced the ISOM blowdown drum and stack with similar

equipment, but BP still did not connect it to a flare. In 2002, BP engineers proposed connecting

the ISOM blowdown system to a flare, but they ended up going with a less expensive option to save money.

36 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 44 of 150

112. The occupied trailers were sited too close to a process unit handling highly

hazardous materials. All the fatalities occurred in or around the trailers and in the years prior to

the incident, eight serious releases of flammable material from the ISOM blowdown stack had

occurred, and most of the ISOM startups experienced high liquid levels in the splitter tower. BP did not investigate these events.

113. This disaster, while tragic, was predictable. In the fall of 2004, the Texas City

refinery plant manager, Don Parus, gave a presentation to BP’s worldwide refining and

marketing chief, John Manzoni, entitled “Texas City is not a Safe Place to Work.” The

PowerPoint slides discussed circumstances surrounding two deaths at the Texas City refinery that year, and warned that “WE STILL HAVE MUCH TO DO!”26

b. US Chemical Safety and Hazard Investigation Board Report

114. After the Texas City refinery disaster, the US Chemical Safety and Hazard

Investigation Board (“Safety Board”) investigated BP’s safety performance at Texas City and also the role played by BP senior management.

115. According to the Safety Board’s final report, the Texas City disaster was caused

by organizational and safety deficiencies at all levels of BP. Warning signs of a possible

disaster were present for several years, but company officials did not intervene to prevent the

disaster. The extent of the serious safety deficiencies were further revealed when the refinery

experienced two additional serious incidents just a few months after the March 2005 disaster. In

one, a pipe failure caused approximately $30 million in damage and in the other, there was

26 Daniel Schorn, The Explosion At Texas City (CBS News, October 29, 2006).

37 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 45 of 150

approximately $2 million in property loss. In each of the incidents, community shelter-in-place orders were issued.

116. The Safety Board’s report states:

Simply targeting the mistakes of BP’s operators and supervisors misses the

underlying and significant cultural, human factors, and organizational causes

of that disaster that have a greater preventative impact. One underlying cause was that BP used inadequate methods to measure safety conditions at Texas City.

For instance, a very low personal injury rate at Texas City gave BP a misleading

indicator of process safety performance. In addition, while most attention was

focused on the injury rate, the overall safety culture and process safety

management (PSM) program had serious deficiencies . Despite numerous

previous fatalities at the Texas City refinery (23 deaths in the 30 years prior to the

2005 disaster) and many hazardous material releases, BP did not take effective

steps to stem the growing risk of a catastrophic event .”

117. Some of the key organizational findings from the Safety Board’s final report

found :

• cost-cutting, failure to invest and production pressures from BP Group

executive managers impaired the process safety performance at Texas City.27

• The Texas City refinery had a “check the box” mentality meaning the

personnel would complete paperwork and check off on the safety policy

and procedural requirements without even actually doing the checks and meeting the requirements.

• BP Texas City lacked a reporting and learning culture. The personnel

were not encouraged to report safety problems and some even feared

retaliation for doing so. Therefore, the lessons that could have been

learned from the incidents were never learned because the incidents were never acted upon. This would be a recurring theme for BP.

• BP’s safety campaigns, goals, and rewards that were more focused on

improving personal safety metrics and worker behaviors rather than on

process safety and management safety systems. Even though Texas City

was compliant with many safety policies and procedures, the managers did

not lead by example regarding safety. There were numerous surveys,

27 CSB Report, Pg. 25.

38 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 46 of 150

studies, and audits that identified deep-seated safety problems at Texas

City, but the response of the BP managers at all the levels was usually “too little, too late.”

c. BP Issues Incident Investigation Report

118. On December 9, 2005, BP issued its final incident investigation

report on the Texas City disaster. The investigation found that “[a] number of interviewees

noted that safety did not seem to be a priority, particularly as compared to cost

management” and that “ [p]rocess safety, operations performance and systematic risk 28 reduction priorities had not been set and consistently reinforced by management.” In that

report, BP claimed to improve safety not only at that refinery but throughout all of its operations.

119. Ross Pillari, president of BP Products North America, Inc. stated that “[t]he report

clearly describes the underlying causes and management system failures which contributed to the

worst tragedy in BP’s recent history. We accept the findings, and we are working to make Texas

City a complex that attains the highest levels of safety, reliability and environmental performance.”29

120. A BP press release issued after the Texas City accident stated, “BP has accepted

responsibility for the explosion and fire that occurred at its Texas City refinery on March 23,

2005. BP is deeply sorry for what occurred and for the suffering caused by its mistakes. BP is

working to improve plant integrity, safety culture and process safety management at all BP-

operated facilities in order to prevent incidents like this in the future .”

28 John Mogford, Fatal Accident Investigation Report (December 9, 2005), at Pg. 165.

29 Dec. 9, 2005 BP Press Release, BP Issues Final Report on Fatal Explosion, Announces $1 billion Investment at Texas City .

39 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 47 of 150

d. Costs and Consequences to BP of the Texas City Disaster

121. As a result of the Texas City disaster, BP pleaded guilty to federal felony charges

and was fined more than $50 million by the U.S. Environmental Protection Agency. BP officers

signed a settlement with federal safety inspectors vowing to institute improvements, but in 2009

the federal Occupational Safety and Health Administration (“OSHA”) assessed an $87 million

fine – the largest in its history – to BP for failing to correct the safety violations at the Texas City

plant. OSHA also declared that BP had a “ serious systematic safety problem .”

122. OSHA enforcement at the BP refinery was also examined. After the explosion,

OSHA uncovered 301 “egregious willful” violations for which BP paid a $21 million fine, the

largest ever issued by OSHA.

123. A 2006 shareholder derivative lawsuit in the aftermath of the Texas City refinery

explosion resulted in a settlement in which BP agreed to incorporate changes to improve its

safety record.

3. 2005: THUNDER HORSE

124. BP invested $5 billion in Thunder Horse, a huge drilling platform in Gulf of

Mexico. Thunder Horse, at full capacity, could pump 250,000 barrels of oil per day, doubling

BP’s total oil output in the Gulf.

125. In July 2005, Thunder Horse was evacuated due to the approach of Hurricane

Dennis. After the hurricane had passed, the platform was listing badly.

126. The cause of the list was six inches of pipe that had been improperly installed and

allowed water to flow freely between tanks that kept the rig level. Additionally, one way valves

40 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 48 of 150

that were supposed to keep water out had been installed backwards and were forced open when

the rig began to tip over. 30

127. BP soon discovered that the pipes connecting to the rig were cracked because of

welding mistakes. If the well had been active at the time of the accident, the damaged pipes

could have caused a major oil spill. As a senior engineering consultant on the Thunder Horse

project, later explained: “You would have lost a lot of oil a mile down before you would have

even known. It could have been a helluva spill – much like the Deepwater Horizon.” 31

4. 2006: PRUDHOE BAY, ALASKA

128. On March 2, 2006, BP discovered an oil spill at its pipeline in Western Prudhoe

Bay, Alaska. 267,000 gallons of oil had spilled over 1.9 acres, making it one of the largest oil

spills ever in Alaska. The cause of the leak was a corroded pipeline that was the result of grossly

neglected maintenance. BP was later forced to admit that it had implemented various

cost-cutting measures that had reduced monitoring of the pipeline for corrosion. As

Robert Malone, CEO of BP America, admitted to a congressional committee, there “was a

concerted effort to manage the costs [at the Alaska fields] in response to the continuing

decline in production at Prudhoe Bay.” 32

129. Inspectors found that the steel pipe – the inside of which hadn’t been inspected in

years – had been corroded to dangerously thin levels along nearly 12 miles of pipeline. BP had

30 Sarah Lyall et al., In BP’s Record, a History of Boldness and Costly Blunders (N.Y.

Times July 12, 2010).

31 Id.

32 Andrew Buncombe, BP’s Oil Spill in Alaska Blamed on Cost-Cutting (The

Independent, May 17, 2007).

41 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 49 of 150

been warned to check the pipeline in 2002, but did not do so. BP was fined $20 million in

criminal penalties after prosecutors charged it with neglecting corroded pipelines.

a. Employees’ Complaints of Cost Cutting At the Expense of Safety

130. In 2001, as part of a probation with the EPA to avoid having its Alaska division

debarred, BP agreed to reorganize its environmental management, establish protections for

employees who spoke out about safety issues, and reform its approach to risk and regulatory

compliance.

131. While BP pledged to improve its conduct and reform its safety and maintenance

programs, BP employees had raised concerns about management’s concerted commitment to

safety and maintenance programs.

132. In October 2001, a BP Operations Review Team issued a report finding that

“certain critical safety systems are in need of urgent maintenance or significant upgrades” and

that “workers are not convinced that management is adequately addressing their operational 33 integrity concerns.” The Report also found that “[m]any employees believe that budgets have

been cut too deeply and that [Greater Prudhoe Bay] management’s top priority is controlling

costs in order to achieve short-term budget targets and not safety, regulatory compliance or

delivering long-term operational integrity. 34

133. As was confirmed in this Operational Integrity report, BP had neglected key

equipment needed for emergency shutdown, including safety shutoff valves and gas and fire

33 BP Operational Review Team, Review of Operational Integrity Concerns at Greater

Prudhoe Bay (Oct. 2001), at Pg. 5.

34 Id. at Pg. 13.

42 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 50 of 150

detectors similar to those that could have helped prevent the fire and explosion on the

Deepwater Horizon rig in the Gulf.

134. The panel identified systemic problems in maintenance and inspection programs –

the operations that keep the drilling in Prudhoe Bay running safely – and warned BP that it faced

a “fundamental culture of mistrust” by its workers, in part because senior management lacked a

structure of accountability.

135. The Report, in relevant parts, found

There is a disconnect between GPB (Great Prudhoe Bay) management's stated commitment to safety and the perception of that commitment .

Correcting these underlying causes is essential ... for ensuring long term

operational efficiency and mechanical integrity. Without a concerted effort to address these basic issues, any other action will provide only temporary relief. 35

136. The Report found maintenance backlogs to be “unacceptable,” concluding that

BP tried to sustain profits even though production was declining. BP also neglected to clean and

check pressure valves, emergency shutoff valves, automatic emergency shutdown mechanisms

and gas and fire safety detection devices essential to preventing a major explosion. It warned

management of the need to update those systems, which “ have a potential immediate safety impact or that pose an environmental threat .”36

137. The Report also warned that emergency shutdown systems would need to be

operated manually, that there may not be enough staff to do so, and said that even if closed, the

isolation valves were known to leak.

35 Review of Operational Integrity Concerns at Greater Prudhoe Bay, Pg. 19 (October,

2001).

36 Id. at Pg. 7.

43 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 51 of 150

138. The Report found that workers did not have adequate access to “as built”

drawings of equipment and the progressing work. “As-built” drawings allow engineers and first

responders to quickly understand the details of the equipment and the ongoing construction, and

therefore to adequately respond. However, as is clear, from the Kenneth Abbott’s whistle blower

complaint, discussed infra, this was a recurring problem at BP.

139. “As-built” drawings are essential safety components. They prove that a piece of

equipment, e.g. a shutoff valve, was built the way it was supposed to be. Those drawings are

thus the final checks to make the equipment operates properly. They also serve as instruction

manuals for emergencies. If there is a fire or blowout, operators can use the drawings to find a

kill lever that can shut an engine down.

140. BP retained the law firm Vinson & Elkins to investigate complaints made by its

Prudhoe Bay employees. The firm’s study confirmed that pipeline corrosion endangered

operations but also found that BP allowed “pencil whipping,” or the falsification of inspection

data and an intense “pressure on contractor management to hit performance metrics (e.g. fewer

OSHA recordables) creates an environment where fear of retaliation and intimidation did occur.”

The report quoted an employee who said BP workers felt pressure to skip key diagnostics,

including pressure testing, cleaning of pipelines and checking for corrosion, in order to cut

costs.37

141. According to a safety complaint filed by a BP employee, BP Management, in an

effort to cut costs, failed to “to rebuild the pulling equipment as often . . . and possibly not

37 Abrahm Lustgarten & Ryan Knutson, Years of Internal BP Probes Warned That

Neglect Could Lead to Accidents (ProPublica June 7, 2010).

44 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 52 of 150

pressure test the equipment . . . [t]his obviously would increase the potential for equipment 38 failure resulting in equipment damage, environmental spills and injury to workers.”

142. In August 2006, just five months after the spill at Prudhoe Bay, Stuart Sneed, a

pipeline safety technician for a BP contractor, discovered a crack in the steel skin of an oil transit

line. Nearby, contractors were grinding down metal welds, sending a fan of sparks shooting

across the work site. Sneed feared the sparks could ignite stray gases, or the work could make

the crack worse, so he ordered the contractors to stop working.

143. According to Sneed: “Any inspector knows a crack in a service pipe is to be

considered dangerous and treated with serious attention. . . . The crack could have created a

hellacious leaker with people grinding on it.” Sneed was scolded by his supervisor for stopping

the contractors from working, singled out by his supervisor and harassed and two weeks after the

incident was terminated.

144. During the investigation into Sneed’s termination, investigators determined that

“many of the people interviewed indicated that they felt pressured for production ahead of

safety and quality.” Contractors received a 25% bonus tied to BP’s production numbers. This

led to fewer delays which in turn led to more oil being pumped which in turn led to more cash

flow to companies executing the work under BP supervision. Sneed said of BP’s corporate

policies and public statements, “ They say it’s your duty to come forward . . . but then when

you do come forward, they screw you. They’ll destroy your life . . . No one up there is

38 Id.

45 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 53 of 150

going to say anything if there is something they see is unsafe. They are not going to say a

word.”39

b. BP Pleads Guilty

145. On October 25, 2007, a BP subsidiary pled guilty to a criminal violation of the

Clean Water Act and U.S. District Court Judge Ralph Beistline sentenced BP to three years

probation. Judge Breistline stated at that time that oil spills were a “serious crime” that could

have been prevented if BP had spent more time and funds investing in pipeline upgrades and a

“little less emphasis on profit.” A Congressional committee later determined that BP had

ignored opportunities to prevent the spill and that “draconian” cost-saving measures had

led to shortcuts in its operations .

146. According to Jeanne Pascal, a former EPA attorney, who investigated BP for

twelve years, “They are a recurring environmental criminal and they do not follow U.S. health

safety and environmental policy . . . At what point are we going to say we are not going to do

business with you any more, bye? None of the other supermajors have an environmental

criminal record like they do.”

147. The architect of the BP Alaska environmental disaster and retaliatory atmosphere,

Doug Suttles, eventually was promoted at BP America, and put in charge of the Gulf of Mexico

offshore operations.

39 Abrahm Lustgarten & Ryan Knutson, Years of Internal BP Probes Warned That

Neglect Could Lead to Accidents (ProPublica June 7, 2010).

46 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 54 of 150

D. REGULATORY REPORTS FORCE BP TO ADDRESS, AT LEAST PUBLICLY,

SAFETY LAPSES

1. BAKER REPORT

148. After the Texas City refinery incident, BP followed the recommendation of the

U.S. Chemical Safety and Hazard Investigation Board and formed the BP US Refinery

Independent Safety Review Panel to conduct a thorough review of the company’s corporate

safety culture, safety management systems, and corporate safety oversight. The Panel included

such luminaries as James A. Baker, III, former U.S. Secretary of State and former Senator

Thomas Slade Gorton III (R-Washington).

149. In January 2007, the Panel issued a report, commonly referred to as the “Baker

Report,” which stated that “BP’s Group requirements are intended to ensure a consistent Group-

wide effort to achieve BP’s stated commitment toward ‘no accidents, no harm to people, and no

damage to the environment.’”

150. The Baker Report set forth the standards and guidelines that BP publically

claimed to be followed in a section entitled, “BP Group-Level Standards, Practices, and

Expectations for Process Safety.” This section goes on to state:

BP CODE OF CONDUCT

The Code of Conduct provides a starting point for the conduct expected of BP

employees.” All employees must follow the Code of Conduct, and supervisors

must also promote, monitor, and enforce compliance with it. The Code of

Conduct contains a two-page section addressing the health-and safety-related

conduct of all BP employees and anyone else working at BP facilities. It

provides that “[n]o activity is so important that it cannot be done safely” and

emphasizes that “[s]imply obeying safety rules is not enough. BP’s

commitment to safety means each of us needs to be alert to safety risks as we go

about our jobs. The Code of Conduct does not make reference to specific BP

standards, practices, or expectations; instead, it contains a list of basic rules that

all employees must follow. These basic rules induce practices that might be

47 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 55 of 150

described as axiomatic, such as “stop any work that becomes unsafe” and “make

sure you know what to do if an emergency occurs at your place of work.”

GETTING HSE RIGHT

Getting HSE right (gHSEr) describes the BP HSE Management System

Framework and represents how BP intends to meet its HSE performance

commitment. It sets forth the Group’s expectations for the health, safety, and

environmental practices of its business units. These HSE expectations

“encompass the complete spectrum of health, safety, and environmental risk

management including personal security, technical/operational integrity of

facilities and equipment, and product stewardship. gHSEr represents “the

boundaries within which all SP managers must operate” and is mandatory for

every business unit.

According to BP, an HSE management system containing the gHSEr elements

should ensure continuous improvement of the business unit’s HSE practices

through a”Plan-Perform-Measure-and-Improve cycle.” Each business unit is then

responsible for designing an HSE management system that meets all of the

relevant BP Group-wide expectations set out in gHSEr:

BP’s HSE expectations are presented in gHSEr’s 13 Elements of Accountability,

which provide expectations in the following areas:

• Leadership and accountability . Managers must develop,

document, and implement HSE management systems in

accordance with HSE expectations.

• Risk assessment and management. Managers must assess,

document, and reference risks in their decisions.

• People, training, and behaviors. HSE responsibilities should be

assigned by managers to individuals, and managers must document

those responsibilities and create performance targets.

• Working with contractors and others. Contractors must be

supervised, and this includes reviewing their HSE policies,

• Facilities design and construction. There must be documentation

of project management systems and formal approval for design,

procurement, and construction standards. Also, pre-start-up

reviews must be carried out for all new or modified equipment.

48 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 56 of 150

• Operations and maintenance. Post-start-up reviews must be

completed and procedures must be developed and followed for

equipment operations, maintenance, and retirement.

• Management of change. Changes must be formally assessed and

approved, and they must nat exceed their original scope or

duration.

• Information and documentation. Information must be made

available but also secure.

• Customers and products. BP must maintain information about

product hazards and adverse product effects and have a recall

system in place.

• Community and stakeholder awareness. BP must communicate

HSE information to the community.

• Crisis and emergency management. Plans must be developed,

continuously updated, and tested through drills.

• Incident analysis and prevention. All incidents must be fully

reported, investigated, and findings must be shared as appropriate.

BP should have teams with some members from outside the

business unit for major incidents.

• Assessment, assurance, and Improvement. HSE target, and

audit programs to track progress towards them must be established.

In addition to these elements of accountability, gHSEr contains key HSE

processes that BP business units should employ as part of their HSE management

systems. The HSSE processes listed in gHSEr are directed toward delivering

HSSE assurance, behaviors, HSSE risk management, crisis and emergency

management, major incident and high potential incident reporting, incident

investigation guidelines, HSSE performance targets, HSSE reporting

requirements, joint ventures and other operational experiences, HSSE reporting

definitions, and health management.

gHSEr contains an expectation that BP business units conduct gHSEr

self-assessments annually and sponsor external gHSEr audits at least once every

three years. The Panel has reviewed a number of reports describing recent gHSEr

self-assessments and audits of individual U.S. refineries. The Panel has also

reviewed reports that BP’s Internal.

49 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 57 of 150

BP GOLDEN RULES

The Golden Rules are intended to provide easy-to-remember, basic guidance to

the BP workforce in eight areas: (l) permit to work, (2) ground disturbance, (3)

working at heights, (4) driving safety, (5) energy isolation, (6) confined space

entry, (7) lifting operations, and (8) management of change. Several of the

Golden Rules, including permit to work and management of change, are relevant

to the management of process safely.

In addition to the Golden Rules, BP expects that the following basic principles

will be incorporated into each rule:

“[W]ork will not be conducted without a pre-job risk assessment and a safety

discussion . . . [A]ll persons will be trained and competent in the work they

conduct. [P]ersonal protection equipment will be worn . . . [E]mergency response

plans . . . will be in place before the commencement of work .... [And] everyone

has an obligation to stop work that is unsafe.”

The Golden Rules do not provide specific procedures aimed at refining operations

or any other individual BP operation. Standards and policies addressing specific

aspects of BP operations are contained in, among other sources, Group standards

and engineering technical practices, which are discussed below. Because they

apply broadly to the daily activities of BP’s workforce, the Golden Rules

frequently overlap with more specific sources of authority such as Group

standards or engineering technical practices. The Golden Rules are relatively

simple, and they do not appear to conflict with more specific authorities. BP’s

control of Work Group standard, which touches on many of the same work

practices contained in the Golden Rules, states that guidelines in the control of

work standard should be used in conjunction with the Golden Rules.

BP GROUP STANDARDS

BP has issued a limited number of Group standards to address certain risks

relating to all of BP’s business segments, such as Refining and Marketing. Group

standards establish expectations and processes for reducing the risk of failure to

deliver Board goals or the risk of noncompliance with the Code of Conduct in the

areas that are subject to Group standards. As of December 1, 2006, BP had issued

Group standards related to safety in the areas of driving safety, control of work,

and integrity management. In addition, a draft Group marine operations standard

is currently under review. Three of BP’s Group standards have direct bearing on

process safety practices in refining, the 2001 process safety/integrity management

standard: the new 2006 integrity management standard which replaces the process

safety/integrity management standard; and the control of work standard.

50 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 58 of 150

BP process safety/integrity management standard

In May 2001, BP issued a process safety/integrity management (PS/IM) standard

directed toward process safety/integrity management at BP facilities. Intended to

support the delivery of the HSE expectations in gHSEr, BP promulgated this

standard partly in response to three major process incidents that occurred at the

BP Grangemouth Petrochemical Complex in Scotland during May through June

2000.

The PS/IM standard sought to “help prevent the occurrence of, or minimize the

consequences of, catastrophic releases of hazardous materials and to assure

facilities are designed, constructed, operated[,] and maintained in a safe fashion

using appropriate codes and standards.” It established requirements in the

following areas related to process safety and integrity management, hazard

evaluation, management of change, mechanical integrity, protective systems,

competent personnel, incident investigation, emergency response, and

performance management and assurance, BP viewed the eight requirements

comprising the PS/IM standard as having their basis in the gHSEr expectations, and applicable gHSEr expectations were linked to each of the eight requirements.

A key aspect of the PS/IM standard is the requirement that “[a]ll facilities must

systematically identify hazards within its boundary arising from normal and

abnormal operations and shall eliminate/ control/mitigate the hazards such that

residual risks are as low as is reasonably practicable. The new integrity

management standard, described below, has superseded the PS/IM standard.

BP integrity management standard

BP designed the integrity management standard to ensure that equipment used in

BP operations is fit for service, thereby avoiding loss of containment incidents. In

promulgating this standard, BP observed that it was derived from, and intended to

improve upon, the 2001 PS/IM standard. The integrity management standard

defines a formal approach to management integrity at BP operations during all

phases of equipment life, from design and construction, through operation and

maintenance, to decommissioning. BP’s U.S. refineries have begun to implement

the integrity management standard, with full implementation required by

December 31, 2008. BP has recently developed an audit protocol for assessing

compliance with the integrity management standard.

The integrity management standard has ten elements: (1) accountabilities, (2)

competence, (3) hazard evaluation and risk management, (4) facilities and process

integrity, (5) protective systems, (6) practices and procedures, (7) management of

change. (8) emergency response, (9) incident investigation and learning, and (10)

performance management and learning. According to BP, the integrity

management standard has incorporated all elements of the superseded PS/IM

standard. However, the Panel notes that the integrity management standard’s

51 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 59 of 150

hazard evaluation and risk management element does not contain the PS/IM

standard’s requirement that identified risks be mitigated “as low as reasonably

practicable.” Instead, the new integrity management standard contains a more

general requirement that BP operations “identify and mitigate” integrity

management hazards and risks, including development of a hazard and risk

register for each BP operation with links to the measures, systems, processes, and

procedures in place to manage or mitigate the risks.

The integrity management standard requires all BP operations to conduct an

assessment for quantifying and ranking major accident risks. This major accident

risk methodology is described in BP Group Engineering Technical Practice GP

48-50, Guidance on Practice for Major Accident Risk Process, discussed below,

To ensure that the assessments are done consistently from one refinery to the next,

BP’s Head of Major Hazards and Fire established dedicated teams to conduct

major accident risk assessments of BP refineries. In addition to major accident

risk assessments, the integrity management standard also requires each site to

develop formal procedures for identifying and managing integrity management

hazards associated with both normal and abnormal operations.

BP control of work standard

BP issued the control of work standard to ensure a “formal approach to managing work risk for BP employees and for BP companies and their contractors.

Although the BP Golden Rules existed prior to the control of work standard and

provided some basic guidance relating to control of work, BP concluded that the

standard was necessary based upon its review of fatal accidents to the BP

workforce from 2000 to 2004. From this review, BP discovered that job factors

related to control of work were frequently identified during its incident root cause

analyses.

BP intends for the control of work standard to provide a means for safely

controlling construction, maintenance, demolition, remediation, operating

tasks, and similar work activities. Among other things, the control of work

standard requires a written policy for describing the control of work process,

defined account abilities for all identified roles within the control of work policy

and associated procedures, and training for persons involved in the control of

work process. The standard also prohibits tasks unless they are assessed for

risk. Additionally, it imposes a permit requirement for work involving confined

space entry, work on energy systems, ground disturbance, hot work, or other

hazardous activities. Control of work policy and associated procedures must also

make clear to everyone that they have the obligation and authority to stop unsafe

work. Refineries must implement the standard by the end of 2009.

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BP refining subsequently published minimum expectations for control of work to

implement the control of work standard. This publication contains

element-by-element direction, specific to BP refining operations, to ensure that

BP refineries comply with the requirements contained in each element of the

standard.

151. In sum, the Baker Report warned of a systemic breakdown in BP’s process

management, noting that “information available to the Panel appears to indicate a more systemic breakdown occurring at multiple levels and in different line and functional positions.” 40

152. After the Baker Report was released, Browne stated: “We will use this report to

enhance and continue the substantial effort already underway to improve safety culture and

process safety management at our facilities . . . I intend to ensure BP becomes an industry

leader in process safety management and performance. ”41

153. At a BP news conference following the presentation of the Baker Report,

Browne said:

If I had to say one thing which I hope you will all hear today it is this, BP gets it, and I get it too.

This happened on my watch and, as Chief Executive, I have a responsibility to

learn from what has occurred. I recognise the need for improvement and that my

successor, Tony Hayward, and I need to take a lead in putting that right by championing process safety as a foundation of BP’s operations .42

40 Baker Report, Pg. 228.

41 Jan. 16, 2007 BP Press Release, BP will Implement Recommendations of Independent

Safety Review Panel.

42

http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/SP/STAGING/1

ocal assets/assets/pdfs/Baker_panel transcriMpdf

53 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 61 of 150

2. U.S. CHEMICAL SAFETY AND HAZARD INVESTIGATION BOARD

FINAL REPORT

154. In March 2007, the Safety Board issued its final report on the Texas City

explosion.

155. The Safety Board concluded that BP at its highest levels failed to insure that it

could safely operate its refinery. The “BP Group Board did not provide effective oversight of

BP’s safety culture and major accident prevention programs” and the BP Group . . . did not

effectively evaluate the safety implications of major organizational, personnel and policy

changes.”43

156. Moreover, the Safety Board determined that BP’s senior officers, in mandating

budget cuts to safety programs with knowledge of the perilous safety conditions at Texas City,

left “the Texas City refinery vulnerable to catastrophe.” 44

157. Specifically the Board found:

BP targeted budget cuts of 25 percent in 1999 and another 25 percent in 2005,

even though much of the refinery's infrastructure and process equipment were in

disrepair.

Decisions to cut budgets were made at the highest levels of the BP Group

despite serious safety deficiencies at Texas City. BP executives directed Texas

City to cut capital expenditures in the 2005 budget by an additional 25 percent

despite three major accidents and fatalities at the refinery in 2004.

158. The Safety Board concluded that budgets cuts and a lack senior officer and

director concern for process safety negatively impacted BP’s safety processes:

43 CSB Report, at 179, 210.

44 Id. at Pg. 20.

54 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 62 of 150

Cost-cutting, failure to invest and production pressures from BP Group executive managers impaired process safety performance at Texas City. 45

BP Group executive management became aware of serious process safety

problems at the Texas City refinery starting in 2002 and through 2004 when three major incidents occurred. 46

BP Group Board did not provide effective oversight of the company’s safety

culture and major accident prevention programs. 47

159. The Safety Board noted that BP’s safety process problems were not confined to

the Texas City refinery. In 2004, “BP’s “GHSER [Getting Health, Safety and the Environment

Right] audits for 2003 . . . found a number of serious safety deficiencies common throughout the corporation.”48

E. BP RESPONDS TO ENVIRONMENTAL DISASTERS BY PROMISING

CHANGE

160. In 2007, after the continuous stream of disasters and the publication of the Baker

Report and the final Safety Board Report, BP aggressively sought to change its public image.

Recognizing BP’s poor safety history, CEO Anthony Hayward took over the company in 2007

and launched a campaign to convince the market that the company had changed its ways and was

conducting its operations in a safe and reliable manner. This response was also critical to BP’s

ability to maintain its share value, given its tarnished reputation from the string of environmental

disasters.

45 Id. at Pg. 25.

46 Id. at Pg. 143.

47 Id. at Pg. 295.

48 Id. at Pg. 166.

55 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 63 of 150

161. After taking over as CEO, Hayward represented that his first priority was

“focusing like a laser on safe and reliable operations .” In an interview before his

announcement as CEO, he described how the death of a worker who was on an operation he was

leading in Venezuela shaped his opinion. Defendant Hayward stated that, “I went to the funeral to pay my respects. At the end of the service his mother came upon and beat me on the chest.

‘Why did you let it happen?’ she asked. It changed the way I think about safety. Leaders must make the safety of all who work them their top priority .”

162. Hayward took office amid three criminal investigations and publicly sought to

implement a five-year plan to improve safety across the company.

163. While BP began to tout new areas of oil exploration and production, such as the

deepwater Gulf of Mexico and BP’s unique ability to extract and produce that oil in an

environmentally friendly and safe manner that posed little risk to the company and its

shareholders, Hayward was concerned that “ delays to new production in the Gulf of Mexico” were causing BP’s profits to dip. 49

164. Concealed from Plaintiffs, was Hayward’s and BP’s uninterrupted focus on cost-

cutting and refusal to correct the safety process issues that were roiling the Company. As is now

clear, despite its history of catastrophes and close calls, BP is unable or unwilling to learn from

its many mistakes or to give up its thirst for profits above all else. The company’s dismal safety

record and disregard for prudent risk management are the results of a corporate safety culture that

49 Terry Macalister, Hayward Outlines restructuring to BP staff (, October

11, 2007).

56 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 64 of 150

has been repeatedly called into question by government regulators. BP has consistently chosen profits over safety and often at the expense of human lives, the environment, and shareholders.

165. Hayward and the individual defendants had ample motivation to ignore process

safety. According to BP’s year end 2009 20-F, under the executive compensation policies

adopted by the Board, 70% of Hayward’s performance bonus in 2009 would be based on the

achievement of financial metrics, and only 15% on safety (and not process safety ). As a

result, while BP would publicly represent the safety of its Gulf Operations, its CEO had no

incentive to implement true safety mechanisms.

F. BP MISLEADS INVESTORS REGARDING THE SAFETY OF ITS GULF

OPERATIONS

166. In its 2009 Annual Form 20-F, filed on March 5, 2010, BP stated in a section

entitled “Safety” that “ Good progress is being made on underpinning improved safety

performance in 2009. Throughout the year, we continued to focus on training and

enhancing procedures across the organization ” and touted the “continued success of our

Gulf of Mexico deepwater operations. ”

167. While focusing on marketing itself as being able to achieve substantial revenue

growth from new oil exploration in the Gulf of Mexico, BP misled investors that it was

conducting such operations in a safe manner. For example, BP was quietly cutting thousands of

jobs in an effort to save billions. In 2009, Defendants cut operational costs by 15% stretching

BP’s ability to operate in the Gulf in a non-dangerous manner.

168. In December 2008, an internal BP strategy document warned Defendants that BP

still did not adequately plan for serious safety risks for its operations in the Gulf. The

document warned that senior management’s failure to address this shortcoming could result in

57 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 65 of 150

“multiple injuries/fatalities,” “major environmental damage,” “catastrophic loss of the facility,” 50 and “damage to corporate reputation.” Instead of confronting its inadequate safety processes,

BP represented the exact opposite. In its 2009 20-F, while addressing its oil exploration and

production operations, including highlighting its deepwater Gulf of Mexico operations, BP stated

that, “In Exploration and Production, safety, both personal and process, remains our highest

priority .”

1. BP ATLANTIS: DEFENDANTS CONCEAL REPEATED WARNINGS

ASSOCIATED WITH THEIR GULF OF MEXICO OPERATIONS

169. In mid-2008, safety issues regarding BP’s Gulf operations were raised within BP.

BP’s Deepwater Atlantis facility had a piece of tubing rupture which caused a 193 barrel oil

spill.51 The tubing was connected to a pump that had failed after BP managers had delayed

maintenance on it. An internal report later found that maintenance was postponed because of a

“tight cost budget. ”52

170. Internal BP documents, concealed from the investing public, revealed that BP

investigators found “the deferred repair was a ‘critical factor’ in the incident, but ‘leadership did

not clearly question’ the safety impact of the delay. The budget for Atlantis – one of BP’s most

50 Peter Elkind, et al., BP: “An Accident Waiting to Happen,” (Fortune, January 24,

2011).

51 Guy Chazan, et al., “As CEO Hayward Remade BP, Safety, Cost Drives Clashed ,”

(Wall Street Journal, June 29, 2010).

52 “BP Oil Spill: The Rise and Fall of Tony Hayward ,” Telegraph., July 27, 2010.

58 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 66 of 150

sophisticated facilities – was ‘underestimated,’ resulting in ‘conflicting directions/demands.’ As

investigators were questioning Atlantis’ lean operation, top executives were praising it. 53

171. According a June 29, 2010, Wall Street Journal’s investigation: “ In an internal

communication in early 2009, Neil Shaw, then-head of BP's Gulf of Mexico unit, lauded

Atlantis' operating efficiency , saying it was ‘4% better than plan’ in its first year of production.

It was part of a success story that Mr. Shaw said had enabled BP to become the No. 1 oil producer in the Gulf.”54

172. In this same time period, Kenneth Abbott, a thirty year oil and gas veteran, was

hired as the “project controls lead” for the Atlantis. Abbott supervised six persons charged with

internal auditing of Atlantis’ engineering documents, including “as-built” drawings. Abbott soon became aware that BP did not have a large number of “as-built” drawings.

173. This was well-known to the management of Atlantis. Abbott’s predecessor, Barry

Duff told Abbott and confirmed via email that the “as-built” drawings were not yet ready to be

delivered to the crews that operated the Atlantis.

The current procedures are out of date . . . The risk in turning over drawings that are not complete are:

1) The Operator will assume the drawings are accurate and up to date. This could

lead to catastrophic Operator errors due to their assuming the drawing is

correct. Turning over incomplete drawings to the Operator for their use is a

fundamental violation of basic Document Control, the IM Standard and Process Safety Regulations,

2) Having the project document control person turnover drawings that are not

complete, places the onus on her that they are the most current version. Currently

53 Guy Chazan, et al., “As CEO Hayward Remade BP, Safety, Cost Drives Clashed ,”

(Wall Street Journal, June 29, 2010).

54 Id.

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there are hundreds if not thousands of Subsea documents that have never been

finalized, yet the facilities have been turned over. In some cases, Tinikka does not

have all the versions. Turning over the version she has, runs the risk of the wrong version being used.

The point here is that even if we condoned handing over documents that were not

approved/handed over, we run the risk of not handing over the most current version, (the one theoretically closest to being the most accurate).

174. While at BP Atlantis, Abbott and his team developed a database detailing the

completion status, or latest approval status. As depicted below, the majority of the documents and drawings had never received any engineering approval at any phase of the development.

175. Out of over 7,000 drawings and documents, almost 90% of the necessary

engineering inspections on Atlantis. While BP’s failure to document these engineering

inspections enabled BP to speed Atlantis into production and save two million dollars, according

to Abbott, without properly maintained “as built” engineering documents, persons operating the

Atlantis “are flying blind, and have no way to assure the safety of offshore drilling

operations.”

176. “As-built” documents are standards for the industry. Machinery is designed,

approved for manufacturing, checked to insure the machinery was built properly, and then finally

approved. Without them, it would be the equivalent of constructing a house without having an architect or engineer sign off on the blueprint. 55

177. Nonetheless, BP had obtained authorization to proceed and extract oil and gas by

falsely certifying to the government that it had the required as-built documents on hand. As a

55 House Subcommittee on Energy and Commerce, Transcribed Interview of Kenneth W.

Abbott, at Pg. 70 (June 17, 2010).

60 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 68 of 150

result, BP extracted an estimated $5 billion while failing to create, maintain, or submit critical

engineering, operations, and safety documents. 56

178. According to Abbott, “There seemed to be a big emphasis to push the contractors

to get things done and that was always at the forefront of the operation,” Abbott said “I felt

there had to be balance. You had to have safety because peoples’ life depended on it. My 57 management didn't see it that way .”

179. While BP states that Abbott’s contract was terminated because of a force

reduction, Abbott has stated that he was terminated for his continued insistence that BP develop

or obtain “as-built” engineering documents to insure the safety of BP’s offshore drilling

operations. Two weeks after his termination, BP put out an advertisement for his replacement.

180. MMS regulations as well as BP internal procedures require that the engineering

documents, which Abbott clamored for and was denied, be approved by BP engineers

specializing in the design of offshore structures. According to BP records, the design was not

approved by BP engineers. The Subsea portion of Atlantis was constructed in Drill Centers.

Each one collected the product from several wells and passed it to the surface facility. When

Abbott worked for Atlantis, Drill Center-1 was in production and Drill Center-3 was under

construction. It was brought to Abbott’s attention that his team did not have “approved for

construction” documents for Drill Center-3. In his statement to the House Subcommittee on

Energy and Mineral Resources on June 17, 2010, Abbott said that “we did not have ‘approved

for construction’ documents for DC-3. In my experience, entering into construction without

56 Id. at Pg. 2.

57 Abrahm Lustgarten & Ryan Knutson, Years of Internal BP Probes Warned That

Neglect Could Lead to Accidents (ProPublica June 7, 2010).

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‘approved for construction’ documents can be a major problem. I immediately attempted to

obtain approved for construction documents, but was never able to obtain them.”

181. According to Abbott, the above identified items were critical to the safe and

proper functioning of a drilling system handling oil and gas flows thousands of feet beneath the

surface of the sea under extreme pressures and temperatures. “While design documentation

shortcuts are unacceptable for any engineering project, the accuracy and detail of Atlantis subsea

engineering and design is especially vital to safe operations and protection of the environment.

Yet, BP management has rejected requests by its own employees to remedy the unsafe situation 58 because of the estimated . . . cost[s].”

182. Abbott’s assertions regarding BP’s failure to complete essential engineering

documents were confirmed by BP’s Ombudsman and an independent firm hired by BP in 2009.

BP violated its own policies by not having completed engineering documents on board the

Atlantis when it began operating in 2007. 59

183. Some of the same problems Abbott raised were determined to be causal factors of

the Deepwater Horizon blowout: (1) blowout preventers did not close – on Atlantis, safety

shutdown system logic has not been engineer-approved; this could cause failure of shutdown

systems; (2) rig crew did not understand makeup of blowout preventers – this would be due to

failure to have up to date as-built documents; same problem as Atlantis; (3) a mechanic

apparently did not have access to manual shutdown procedures for diesel engines – again, failure

to have proper documentation; and (4) there was apparently no gas sniffer and automatic

58 Exh. E to the June 17, 2010 Statement of Kenneth W. Abbott before the United States

House of Representatives Subcommittee on Energy and Mineral Resources.

59 May 15, 2010 Associated Press.

62 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 70 of 150

shutdown for the diesel engines – failure to have safety equipment which should have been present happens when proper engineering procedures are not followed. 60

184. Abbott’s complaints were not the first time the company had been warned about

not maintaining as-built drawings. According to BP’s internal 2001 operational integrity

report, as-built documentation was not maintained at the company’s Prudhoe Bay

operations either.

185. Abbott later testified to Congress in 2010:

“From my experience working in the industry for over 30 years, I have never seen

these kinds of problems with other companies. Of course, everyone and every

company will make mistakes occasionally. I have never seen another company

with the kind of widespread disregard for proper engineering and safety

procedures that I saw at BP and that we hear from the news reports about BP

Horizon, or BP Texas City, or the BP’s Alaska pipeline spills. BP’s own

investigation of itself, by former Secretary of State James Baker, reported

that BP has a culture which simply does not follow safety regulations. From 61 what I saw, that culture has not changed. ”

186. Internal BP documents corroborate Abbott’s opinion of the BP culture. In an

internal report obtained by the Wall Street Journal, after the 2008 incident on the Atlantis

platform, BP on notice of its lax safety oversight and tight budgets in the Gulf of Mexico,

concluded “A key question to ask, especially with apparently minor and disconnected defects, is

‘What’s the worst thing that could happen ?’”

60 June 17, 2010 Statement of Kenneth W. Abbott before the House Subcommittee on

Energy and Mineral Resources.

61 June 17, 2010 Statement of Kenneth W. Abbott before the House Subcommittee on

Energy and Mineral Resources.

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2. ADDITIONAL INCIDENTS PROVIDED RED FLAG WARNINGS OF

IDENTICAL RISKS TO THOSE OF THE DEEPWATER HORIZON

187. Additional incidents, concealed to the marketplace, provided additional notice of problems to come on the Deepwater Horizon.

188. An MMS study noted that blowouts during cementing work were continuing with

alarming regularity, particularly in the Gulf of Mexico. Cementing was a factor in 18 of 39 well

blowouts in the Gulf of Mexico between 1992 and 2006.

189. , BP’s Deepwater Horizon joint venturer, was responsible for

cementing a well off the coast of Australia that blew in August 2009, leaking oil for ten weeks

before it was plugged. An MMS official has testified that a poor cement job likely caused the

blowout.

190. Moreover, a blowout preventer manufactured by Cameron was the subject of a

dispute between BP and (the builder and owner of the oil rig) in June 2000.

Cameron also made the blowout preventer that failed on the Deepwater Horizon. In the 2000

incident, BP issued a notice of default to Transocean concerning the functioning of one of

Transocean’s oil rigs, in which the blowout preventer was the subject of concern. Nevertheless,

BP used a Cameron-built blowout preventer on the Deepwater Horizon. Defendant Hayward

acknowledged the existence of this dispute in public comments on May 4, 2010. 62

191. In addition, BP was aware of an August 2009 blowout in the Timor Sea off the

coast of Australia, which was found to have been caused by careless cementing work. During

62 Stephen Power et al., Investigators Focus on Failed Device, (Wall Street Journal, May

6, 2010).

64 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 72 of 150

that incident, which bears a strong resemblance to the Deepwater Horizon disaster, oil leaked

from the site for ten weeks, spreading damage over 200 miles from the well site.

3. BP’S LEASE, DESIGN AND DRILLING OF THE MACONDO WELL

a. The Macondo Site

192. The first step in any offshore drilling process is the selection of a site to drill. In

this instance, BP paid more than $34 million to lease “ Block 252,” a nine

square mile plot of land in the Gulf of Mexico. On March 10, 2009, BP filed an Initial

Exploration Plan for Mississippi Canyon 252. The document was dated as being received by the

MMS on February 23, 2009.

193. The well itself is located approximately 48 miles from the nearest shoreline;

approximately 114 miles from the shipping supply point of Port Fourchon, Louisiana; and 154

miles from the Houma, Louisiana helicopter base. The Macondo well was BP’s first well in

Mississippi Canyon Block 252. The water in the area where the Macondo well was drilled is

approximately 5,360 feet deep.

194. The Macondo site in the Northern Gulf of Mexico is notorious for high temperatures, high pressure, highly gaseous hydrocarbon reservoirs and brittle rock formations.

It is a very difficult area to extract hydrocarbons.

195. BP knew or should have known this – the MMS letter approving BP’s Macondo

exploration plan, dated April 6, 2009, and sent from Michael Tolbert to Ms. Scherie Douglas of

BP, stated in part: “Exercise caution while drilling due to indications of shallow gas and possible

water flow.”

196. Based on seismic and other information, BP believed that there was a significant reservoir of hydrocarbons in the porous sands between 18,000 and 21,000 feet below sea level.

65 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 73 of 150

The sea floor is just over 5,000 feet below sea level. The first thousand feet below the sea floor,

the “Pleistocene Layer” consist largely of shale. Between 6,000 and 8,000 feet below sea level,

the “Pliocene Layer” is a mixture of shale and sandstone. The “Late Miocene Layer” exists from

approximately 8,000 feet to 14,500 feet below sea level and is also a mixture of layers of

sandstone and shale.

197. Below that is the “Miocene” layer, which runs from about 14,500 feet to 20,000

feet below sea level. BP expected this layer to contain a porous layer of sand and rock which

was the objective of the well. The porous layer was expected to be about 18,500 feet below sea

level.

198. Before BP could begin operations at the Macondo site, federal regulations

required BP to submit its EP demonstrating that it had planned and prepared to conduct its

proposed activities in a manner that was safe, conformed to applicable regulations and sound

66 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 74 of 150

conservation practices, and would not cause undue or serious harm or damage to human or

marine health, or the coastal environment. 30 C.F.R. §§ 250.201, 250.202.

199. At the Macondo site, the drilling operations would occur at depths in excess of

18,000 feet. BP knew that the threat of blowouts increases as drilling depths increase, especially

in an area with such troublesome geology as the Northern Gulf of Mexico.

200. After its EP was approved, BP sought a permit from the MMS authorizing it to

drill up to a total depth of 19,650 feet at the Macondo site. Notably, after the explosion and spill,

a BP crewman admitted that this depth had been misrepresented to MMS, and that BP had in

fact been drilling in excess of 22,000 feet, in violation of its permit .

b. The Macondo Well Design

201. The well was designed to be drilled down to 20,200 feet below sea level. The

design was created by engineering teams which estimated the pore pressures and strengths of the

geologic formations and used those estimates as a basis for drilling the well. The original plan

consisted of eight casing strings, starting with a thirty-six inch hole and narrowing down to the

production casing designed to be nine and seven-eighths of an inch wide. In part because of the

uncertainty inherent in the drilling process and in part because the geology of the area where the

Macondo well was drilled, there were multiple departures from the well design when the drilling

was actually underway.

202. The well called for narrowing casings on a gradual scale: a twenty-eight inch

casing to be installed at 6,275 feet; a twenty-two inch casing to be installed at 8,000 feet; a

sixteen inch casing to be installed at 12,500 feet; a thirteen and five-eighths inch liner to be

installed at 15,300 feet; a contingency liner below that; and eventually the production casing of

nine and seven-eighths inches at 19,650 feet.

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c. Drilling the Macondo Well

203. Drilling operations began on October 6, 2009 with the Marianas. After it

evacuated on November 8, 2009 due to Hurricane Ida, it was replaced on January 31, 2010 by the

Deepwater Horizon, which resumed drilling on February 6, 2010. The pore pressures and 63 fracture gradients experienced in drilling the well were different than the design basis. There

was no way to know of these differences until the drilling actually penetrated the rock layers and the pore pressure and fracture gradient were analyzed.

204. The reality under the ocean floor was different than expected and resulted in an additional layer of casing being installed and in the depth of the changes in casing being lessened.

This resulted in a production casing being installed at an actual depth of 18,304 feet which was

only seven inches wide.

205. The first problem encountered in drilling the well occurred at approximately

12,350 feet. At that depth, there were indications of increasing pore pressure which resulted in a

lost circulation zone. This meant that the pressure the drilling fluids exerted on the surrounding

rock was too great and the mud began leaking into the rock formations. This was remedied with

the use of “Lost Circulation Materials.” These materials are sometimes known as a “pill” which

is sent down the well in order to plug leaks which are occurring into the surrounding rock.

206. After circulation was restored, there were problems re-reaching the depth of

12,350 feet. Therefore, the sixteen inch casing was installed nearly 1,000 feet earlier than

63 As noted in BP’s Deepwater Horizon Accident Investigation Report (Pg. 17), this was common for exploratory wells in the Gulf of Mexico. This highlights the inherent difficulty and risk connected with deepwater drilling in the Gulf.

68 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 76 of 150

planned. After the sixteen inch section was drilled and cemented, drilling of the next layer of

casing began which resulted in another “well control event.”

207. On March 8, 2010, BP experienced serious problems with the well, including a

hydrocarbon influx into the well and loss of well control. The hydrocarbons leaking into the well

went unnoticed for about 33 minutes, allowing 40 barrels of hydrocarbons to flow into the well

before it was shut in to restore well control. The formation damage from the March 8, 2010,

incident was so severe that a length of drilling pipe became stuck in the open hole of the well

bore, and BP was forced to abandon the lower part of the well bore, plug it with cement, and

begin drilling anew in a different direction, setting well progress back several days and costing

$25 million.

208. Pursuant to their Drilling Contract, BP was paying Transocean approximately

$500,000 per day to lease the Deepwater Horizon, not including contractors’ fees. BP had

planned for the drilling work at Macondo to take 51 days, at a cost of approximately

$96,000,000. Therefore, the lowest part of the wellbore was abandoned.

209. Subsequent drilling bypassed the abandoned wellbore, and revised plans now

called for the seven inch production string to be used due to the high formation pressure

encountered at these depths. The drilling continued with a new contingency liner until April 4,

2010 when another lost circulation event occurred at 18,260 feet. Lost circulation “pills” were

again pumped into the well, and the mud weight was reduced from 14.3 pounds per gallon

(“ppg”) to 14.17 ppg. At this point, there was almost no margin for error because the difference

in the pore pressure and the fracture gradient was almost nonexistent – the pressure had to be

maintained at 14.0 ppg to balance the pressure exerted by the hydrocarbons in order to attempt to

prevent a kick or blowout.

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210. The reduction in pressure solved the circulation problems and full circulation was

regained on April 7, 2010. Two days later, the well was drilled to a final depth of 18,360 feet.

At this point, the BP engineers calculated that drilling any deeper would increase the pressure

beyond the fracture gradient because the additional weight of the mud, even at the lowest

pressure possible. Therefore, they concluded that the well could not be drilled any deeper

without either fracturing the rock or having hydrocarbons begin to seep up the wellbore. The

final stopping point was nearly 2,000 feet shallower than the original designs.

211. Once the final depth was reached, the crews spent five days “logging” the well in

order to evaluate the Pay Zone. After the reservoir was determined to be both large enough and

at acceptable pressure levels, the crews conducted tests to check the stability of the well. One of

these tests was a “bottoms up” test, which involves circulating mud from the bottom of the well

back up to the top by pushing new mud into the well. This is done to ensure that there is no gas

trapped inside the mud.

d. Departures from Normal Procedures in Drilling the Macondo Well

212. Because drilling oil wells, in general and drilling deepwater wells, specifically is

inherently risky and unpredictable, there are always surprises that require changing plans and

diverting from normal drilling techniques. However, the series of decisions were made during

the drilling of the Macondo well which were the product of a corporate culture within BP to save

money and time, which resulted in increasing the already significant risks associated with

deepwater drilling.

1. Long String Casing Versus a Liner

213. In order to strengthen the well design and provide multiple barriers against

blowouts, drilling companies often use a redundant casing design called a “liner/tieback,” which

70 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 78 of 150

provides four barriers against blowouts, while the “long string” casing design chosen by BP only

provided two: the cement sealing off the hydrocarbons in the reservoirs from entering the well

and, more than 18,000 feet above that, the seal assembly at the top of the well.

214. The long string casing design was especially inappropriate for a difficult and

kick-prone well like Macondo. BP had originally planned to use the safer liner/tieback design,

but rewrote the drilling plan just weeks before the disaster – against the advice of its contractors

and its own employees – because the project was behind schedule and over budget. Internal BP

emails from late March 2010 acknowledged the risks of the long string design but chose it as the

primary option because it “saves a lot of time . . . at least 3 days,” “saves a good deal of

time/money,” and is the “[b]est economic case.” 64

215. For two days on April 14 and 15, 2010, engineers from Halliburton and BP used

computer modeling to attempt to determine the outcome of the cementing process. Early results

suggested that there was not a reliable way to cement a long string production casing. The

cementing experts recommended a shift to a Liner, but that recommendation was resisted by BP.

216. BP could have drilled the hole with a “liner” which would have reduced the

blowout risk, but this was rejected because it would cost up to $10 million more .

217. Although the liner/tieback design is more expensive and takes more time to

install, it provides four barriers against hydrocarbons leaking into the well and causing blowouts:

(1) the cement at the bottom of the well; (2) the hanger that attaches the liner pipe to the existing

64 Email from Brian Morel, BP Drilling Engineer, to Allison Crane, Materials

Management Coordinator, March 25, 2010; Email from Brian Morel, BP Drilling Engineer, to

Sarah Dobbs, Completion Engineer, March 30, 2010.

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casing in the well; (3) the cement that secures the tieback pipe on top of the liner; and (4) the seal 65 assembly at the wellhead.

218. BP was aware that the long string design was the riskier option. A BP “Forward

Plan Review” recommended against the long string option because of the risks: “Long string of

casing was the primary option” but a “Liner/Tieback . . . is now the recommended option.”

219. The BP Forward Plan Review identified several arguments against using the long

string casing design, including the high risk of a failed cement job, the inability to comply with

MMS regulations, and the need to verify the cement job with a cement bond log test and most

likely perform remedial cement job(s). The Review also noted a number of advantages to using

the liner/tieback design, including the liner hanger acting as an additional barrier against influxes,

a higher chance for a successful cement job on the first try, and the flexibility to postpone a

remedial cement job, if it was found that one was required.

2. A Lack of Centralizers

220. While the crew was lowering the casing, they began installing centralizers in order

to ensure that the casing would remain centered in the wellbore when the cementing process

began. The original designs had called for sixteen or more centralizers to be placed along the

long string. On April 1, 2010, BP learned that their supplier of centralizer subs had only six

centralizer subs available. At this point, BP was faced with a choice – wait for their supplier to

order and receive more centralizer subs or use slip-on centralizers to make up the difference.

221. Centralizers ensure that the casing pipe is centered in the well bore; if the pipe is

not centered, the cement placed around it often fails to create a secure seal against the

65 House Subcommittee on Energy and Commerce, Letter to Tony Hayward, at Pg. 4

(June 14, 2010).

72 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 80 of 150

highly-pressurized hydrocarbons surrounding the well. The cement around the casing is intended

to seal the space (the “annulus”) between the rock walls of the drilled out well bore hole and the

casing that runs through the well bore. If the casing is not centered within the wellbore, the pipe

can lay near or against the sides of the bore hole, creating too narrow of a space for the cement to

set properly and leaving “channels” of empty space or weak areas in the cement. Those channels

and imperfections can allow hydrocarbons to escape out of the formations and into the well,

causing a kick or a blowout.

222. Based on modeling done on proprietary software called OptiCem, which

calculates the likely outcome of cementing jobs based on a number of variables, including the

number of centralizers, the Macondo production casing needed more than six centralizers in

order to avoid “channeling.” Channeling occurs when the annular areas outside the production

casing are unequal, causing the cement to flow more quickly up one side and slowly, or not at all,

up the other portions which allows for gas flow in the annular areas.

223. The BP engineers were told of the need for more centralizers on April 15, 2010.

BP’s team obtained permission from senior manager David Sims to order sixteen additional slip-

on centralizers, which was the most BP could transport on a single helicopter, meaning they

could remain on schedule. The OptiCem simulations with twenty-one centralizers in place

showed that the channeling and gas flow would be less severe.

224. An email from shore-based BP Operations Vice President Brett Cocales to

rig-based BP drilling engineer Brian Morel acknowledged the importance of centralizers, noting

that “[e]ven if the hole is perfectly straight, a straight piece of pipe even in tension will not seek

the perfect center of the hole unless it has something to centralize it.”

73 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 81 of 150

225. In an effort to minimize delay, BP workers and their supervisors decided to save

ten hours by only installing six centralizers instead of the recommended twenty-one and did not

adequately ensure the cement could contain the pressure of the well. As the Commission notes:

For example, it does not appear that BP’s team tried to determine before April 15

whether additional centralizers would be needed. Had BP examined the issue

earlier, it might have been able to secure additional centralizers of the design it

favored. Nor does it appear that BP based its decision on a full examination of all

potential risks involved. Instead, the decision appears to have been driven by an

aversion to one particular risk: that slip-on centralizers would hang up on other

equipment.

BP did not inform Halliburton of the number of centralizers it eventually used, let alone request new modeling to predict the impact of using only six centralizers.

Halliburton happened to find out that BP had run only six centralizers when one

of its cement engineers overheard a discussion on the rig.

Capping off the communication failures, BP now contends that the 15 additional

centralizers the BP team flew to the rig may, in fact, have been the ones they

wanted. BP's investigation report states that BP's Macondo team “erroneously

believed” they had been sent the wrong centralizers. To this day, BP witnesses

provide conflicting accounts as to what type of centralizers were actually sent to

the rig.

226. Even more egregious was BP’s decision not to conduct cement log evaluations

after the cementing was completed. BP concluded that the cementing was a success based solely

on the indication that there were no lost returns. In an effort to control costs, BP opted to send expert consultants home instead of allowing them to conduct their tests .

227. When the BP team leader learned of the decision to add more centralizers, he

challenged it. He was concerned that adding on forty-five additional pieces of equipment would take at least ten additional hours. The additional hours meant additional expenditures.

Ultimately, the team leader prevailed and BP installed only six centralizers on the production casing.

74 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 82 of 150

228. Upon learning of BP’s decision, Halliburton engineer Jesse Gagliano sought to

determine if six centralizers would be enough to prevent channeling that gaseous hydrocarbons

could seep through. Halliburton’s analysis concluded that 21 centralizers was the recommended

number to ensure a secure cement job; using ten would result in a “moderate” gas flow problem

and using only six would result in a “severe” gas flow problem. As stated previously, BP

employee, Brett Cocales, responded: “who cares, it’s done, end of story, will probably be

fine.”

3. Cement Fill and Cement Testing

229. During the lead up to the cement fill, BP’s first concern was in avoiding another

“lost returns” event. 66 This concern led them to place a number of significant constraints on the

cementing design submitted to them by Halliburton. First, BP limited the circulation of drilling

mud through the wellbore prior to cementing. Usually (and optimally), the mud in the wellbore

is circulated in “bottoms up” – bringing the mud originally at the bottom all the way to the top of

the rig. This both reduces the likelihood of channeling and allows technicians to examine the

mud from the bottom for hydrocarbon content prior to cementing the well. Therefore, BP

circulated approximately only 350 barrels of mud prior to cementing. To do a full “bottoms up”

circulation would have required 2,760.

66 A lost returns event occurs when the pressure being exerted inside the well exceeds the fracture gradient (the pressure the rock being drilled into can withstand without fracturing). Basically, this means the drilling mud is too heavy and causes the surrounding rock to crack.

Then, the mud, instead of reaching the bottom of the well and returning up the side (the

"annulus"), seeps out into the rock formation.

75 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 83 of 150

230. A “bottoms up” circulation cleans the well bore and prepares the annular space for

cementing by completely circulating the drilling fluids from the bottom of the well all the way to

the surface. A bottoms up circulation also ensures the removal of well cuttings and other debris

from the bottom of the well, preventing contamination of the cement, permits a controlled release

of gas pockets that may have entered the mud during the drilling process, and allows workers on

the drilling vessel to test the mud for influxes of gas. Given that gaseous hydrocarbons leaking

into the well was what ultimately caused the blowout, a bottoms up circulation could have

revealed the severity of the situation at Macondo before it was too late.

231. The American Petroleum Institute (“API”) guidelines recommend a full bottoms

up circulation between installing the casing and beginning a cementing job. According to his

sworn testimony before the House Subcommittee, Halliburton technical advisor Jesse Gagliano

told BP that Halliburton’s “recommendation and best practice was to at least circulate one 67 bottoms up on the well before doing a cement job.” Even BP’s own April 15, 2010 operations

plan for the Deepwater Horizon called for a full “bottoms up” procedure to “circulate at least one

(1) casing and drill pipe capacity, if hole conditions allow.”

232. But a full bottoms up circulation would have taken up to 12 hours on the

deep Macondo well, so against the recommendations of the API and Halliburton, and

against industry standards and its own operations plan, BP chose to save time and money

at the expense of safety.

233. Second, BP decided to pump cement down the well at a rate of four barrels or less

per minute. This is a relatively low rate of speed in the cementing process. Higher flow rates

67 House Subcommittee on Energy and Commerce, Transcribed Interview of Jessie Marc

Gagliano, at Pg. 57 (June 11, 2010).

76 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 84 of 150

increase the efficiency and effectiveness with which the cement replaces the mud in the annular

space. This decision was also made in order to reduce the risk of a lost returns event.

234. Third, BP limited the total volume of the cement which was pumped down the

well. Standard industry practice is to use more cement due to the inherently uncertain nature of

the cementing process. It also reduces risks which arise due to errors in placement. However,

more cement meant more pressure on the rock formation in the Pay Zone. Therefore, BP

determined that to exert as little pressure as possible, the annular cement column was only to

extend 500 feet above the hydrocarbon zone. While BP determined that this fulfilled federal

regulations (requiring 500 feet above the hydrocarbon zone), it did not satisfy BP’s own

internal guidelines . Those guidelines called for annular cement columns to extend 1,000 feet

above the hydrocarbon zone. BP planned to have Halliburton pump just 60 barrels of cement

down the well, an amount its own engineers recognized provided little margin for error .

235. Finally, BP chose to use “nitrogen foam cement.” This type of cement is leavened with bubbles of nitrogen gas, which are injected into the slurry just before it goes down the well.

The purpose of this decision, again was to lower the pressure exerted on the rock formation in

the Pay Zone by reducing the weight of the cement by more than ten percent.

236. While Halliburton worked with BP to design the cement plan, these compromises

were made at BP’s insistence. Importantly, the President’s Commission noted that while

“Halliburton is an industry leader in foam cementing,” BP has “little experience with foam 68 technology for cementing production casing in the Gulf of Mexico.”

68 Pres. Comm. Report, Pg. 100.

77 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 85 of 150

237. Also noteworthy were the failures to properly test the slurry and failures of

communication between BP and Halliburton about the test results. The first round of testing on the slurry occurred in February, just after the Deepwater Horizon began working on the well.

The “pilot tests” on the cement blend were sent to BP in early March and showed that the slurry

design was unstable. There is no indication that BP ever reviewed the tests, ever sought to alter

the slurry or questioned Halliburton about the cement design.

238. Internal documents show a second test was conducted in February which failed

even more severely than the original. Finally, a test was conducted by Halliburton starting on

April 18, 2010 at around 2:00 a.m. This test generally takes forty-eight hours to complete, but

the cement job was completed prior to the time when forty-eight hours would have elapsed. The

desire to act quickly and complete the drilling at the Macondo well took precedence over the

importance of gathering information about the stability and adequacy of the cement used in the

well. The final test results were reported to BP six days after the blowout occurred.

239. The final phase of cementing the well involves evaluating the cement job once the

crew believes it has been completed. As noted above, because of the inherent difficulty and

uncertainty of the process, there is virtually no way to determine the success of a cement job

while it is ongoing. Thus, it is vital to test and evaluate the well after the cement has had a

chance to cure. This is generally done both through a check to determine whether the valves are

closed and holding and through acoustics testing to analyze whether the cement has filled in and

attached to the walls of the casing and the rock layers at the edge of the well. 69

69 Just like a bell which is muffled sounds different than a free swinging one, the acoustics of a well which is fully cemented sound significantly different than a well prior to the cementing and one in which the cementing leaves gaps which hydrocarbons or other gases can enter and rise up the wellbore.

78 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 86 of 150

240. Once the pumpers were finished with the primary cement job, BP opened a valve

to check to determine if the float valves were closed and holding. BP expected about five barrels

of flow back. They experienced about five and a half barrels of flow back, which then reduced to

a “finger tip trickle.” This extra half barrel was decided to be within the acceptable margin for

error. The flow reduced to a “pencil stream,” stopped, started and then stopped altogether. On

the basis of this observation, BP determined that the float valves were closed.

241. Normally, the next step would involve a team of technicians from an outside

company to perform “a suite of cement evaluation tests on the primary cement job, including 70 cement bond logs.” These technicians had been on standby on the rig, waiting for the

completion of the primary cement job for at least one day. BP decided that the testing was

unnecessary, called the job a “success” based on the lack of lost returns and the flow-back

analysis and sent the testing team home. This decision was based on an internal “decision-tree”

which had been prepared by BP before the testing began. The primary criteria on that tree was

whether there had been losses while cementing the long string production casing. BP then began

to prepare for temporary abandonment.

242. Even more egregious was BP’s decision not to conduct cement log evaluations

after the cementing was completed. BP concluded that the cementing was a success based solely 71 on the indication that there were no lost returns. In an effort to control costs, BP opted to send expert consultants home instead of allowing them to conduct their tests .

70 Pres Comm. Report, Pg. 102.

71 Importantly, even this may have been an errant conclusion. As noted above, there was more displacement by a half barrel than was expected, but it was concluded on the spot that this was acceptable and within the margin of error.

79 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 87 of 150

243. BP’s own internal report on the explosion indicates that the evaluation logs should

have been conducted. These logs could have helped to confirm numerous factors which were

otherwise unknowable, including the location of the cement, whether channeling had occurred,

whether the cement had been contaminated, and whether the cement had remained stable.

244. According to testimony before the House Subcommittee on Energy and

Commerce, by avoiding the bond log, BP saved $128,000 and less than 12 hours of work .

4. Testing Leading Up To Temporary Abandonment

245. There were two important tests to be performed during the temporary

abandonment process – the positive pressure test and the negative pressure test. The positive test

evaluates the ability of the casing in the well to hold in pressure. Federal regulations require this

test to be performed prior to abandonment. The crew performed this test by closing the well

below the BOP and pumping in fluids to generate pressure and then checking to see if the well

would hold. BP performed two positive pressure tests, one at 250 psi for five minutes and one at

2,500 psi for thirty minutes. Both tests were successful – there were no leaks through which

fluid was passing from inside the well to the outside.

246. The negative pressure test is designed to check both the integrity of the casing

(like the positive test) and the integrity of the cement job at the bottom of the well. This was the

only test designed to check the bottom hole cement job at the Macondo well. The negative

pressure test is performed by removing pressure from inside the well to see if fluids

(hydrocarbons from the Pay Zone) leak into the well through the bottom hole cement job. This is

done by removing the fluids and the riser, which eliminates the “overbalancing” pressure. This

simulates the absence of pressure which occurs during temporary abandonment. It is a three step

process involving simulating the hydrostatic pressure exerted by the column of fluids on the

80 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 88 of 150

bottom of the well, bleeding any pent up pressure from the well making the pressure inside the

casing zero psi, and finally watching to see if anything flows into the well and determine whether

pressure builds back up inside the well. If there is no fluid or pressure entering the well, the

negative pressure test is considered successful.

247. To conduct the negative pressure test, BP needed to lower the pressure bottom of

the well by approximately 2,350 psi. The result would be that the pressure pushing up on the

bottom of the well from the Pay Zone would exceed the pressure pushing down on the bottom

from the column of fluid in the well. This creates an “unbalanced” state. In preparing for the

test, BP used a “spacer,” a liquid mixture which separates the heavy drilling fluids from the much

lighter seawater.

248. Instead of using a normal spacer, BP used leftover unused lost circulation

materials or pills in order to avoid having to dispose of them onshore as hazardous waste. These

materials had never previously been used by anyone on the rig or by BP as a spacer and had

not been tested for the purpose that BP was employing it for.

249. The crew then began to reduce the pressure in the drill pipe in an attempt to bleed

it down to zero. This requires closing off the “annular preventer” inside the BOP to isolate the

well from the downward pressure exerted by the mud and spacer in the riser. However, they

could not get it below 266 psi and as soon as the pipe was closed, the pressure jumped up to

1,262 psi.

250. The crew noticed that the fluid level inside the riser was dropping, indicating that

the annular preventer was not sealed. Once it was closed more tightly the leak stopped and the

pressure was reduced inside the well to zero psi. However, after the drill pipe was again closed

the pressure built back up to at least 773 psi. A third attempt again managed to reduce the

81 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 89 of 150

pressure to zero psi, but when the pipe was sealed the pressure built back up to approximately

1,400 psi.

251. At this point, there had been three failed negative pressure tests at Macondo.

However, BP concocted an explanation for the pressure build ups which would allow them to

consider the tests successful. According to BP, the pressure buildup was the result of a “bladder

effect.” This is caused by the heavy mud in the riser exerting pressure on the annular preventer 72 which in turn transmits pressure to the drill pipe.

252. In order to attempt to confirm this theory, and because BP had specified in its 73 application that it would do so, BP performed a negative pressure test on the “kill line.” The

crew bled the pressure in the kill line to zero and sealed it. It held for thirty minutes. In theory,

the pressure in the kill line and the drill pipe during an negative pressure test (and during

subsequent abandonment) would be identical because both flow paths went to the same place.

However, during this test on the kill line, the pressure on the drill pipe remained at 1,400 psi

throughout.

253. While the “bladder effect” was proposed as an explanation for this, based on the

1,400 psi reading on the drill pipe “ could only have been caused by a leak into the well. ”74

Despite this, the BP team concluded that the second test had confirmed the well’s integrity and

declared the negative pressure tests a success. This was a key error and a mistaken conclusion. 75

72 Pres. Comm. Report, Pg. 108.

73 The “kill line” is one of three pipes which are three inches in diameter from the rig to

the BOP to allow the crew to circulate fluids into and out of the well at the sea floor.

74 Pres Comm. Report, Pg. 108-109.

75 Pres Comm. Report, Pg. 109.

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254. In May 2010, BP admitted that these pressure test results were clear warning signs

of a “very large abnormality” in the well. 76

255. In their November 16, 2010, interim report, the NAE panel wrote that “it is clear

that pressure buildup or flow out of a well is an irrefutable sign that the cement did not establish

a flow barrier” against the entry of hydrocarbons into the well. At Macondo, there was both

pressure buildup to 1400 psi and unexpected flow out of the well during the negative pressure

tests.

256. Despite the pressure test “red flags,” BP moved forward with the temporary

abandonment process, which resulted in an unnoticed kick, a blowout and eventually the

explosion that sank the Deepwater Horizon resulted in the death of eleven crew members and the

subsequent oil spill in the Gulf of Mexico.

5. Temporary Abandonment Procedures At The Macondo Well

257. BP’s procedures leading up to temporary abandonment involved three important

decisions.

258. First, BP concluded that it would set the cement plug on the top of the production

casing nearly 3,300 feet below the sea floor. This was done in order to in order to allow BP to

hang 3,000 feet of drill pipe from the top of the well in order to create enough pressure to set the 77 lockdown sleeve. There was no reason other than the desire to generate force by hanging drill

76 House Subcommittee on Energy and Commerce Memorandum, Key Questions Arising from Inquiry in the Deepwater Horizon Gulf of Mexico (May 25, 2010); Stephen Power, BP

Cites Crucial Mistake, (Wall Street Journal, May 25, 2010).

77 The Lockdown Sleeve goes over the top of the well and is one of the final safety

mechanisms involved in temporary abandonment. BP chose to set the lockdown sleeve last in

the temporary abandonment sequence. They never reached this step. Setting the sleeve required

100,000 pounds of force, most of which BP intended to generate by hanging the drill pipe from

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pipe that BP identified as the purpose of setting the cement plug so far below the sea floor.

Additionally, BP could have achieved this goal by using heavier drill pipe and setting the cement

plug 1,300 feet below the sea floor.

259. Second, BP decided to displace the 3,300 feet of mud above where the cement

plug would be set with sea water. This greatly reduced the amount of pressure above the well

because the water was significantly lighter than the mud. This was done because it is simpler to

set plugs in sea water and can avoid mud contamination. However, BP has acknowledged that a

cement plug can be set in mud, and there is no evidence that BP or any other operator had ever

set a cement plug so deep in sea water.

260. Third, BP decided to begin displacement of the mud from the riser before the

cement plug (or some other barrier) had been set in the production casing. This meant that

during the displacement of the riser, while the BOP was open and before the cement plug was set

at the top of the production casing, the only barrier between the Pay Zone and the rig was the

primary cement job at the bottom of the well.

261. Each of the temporary abandonment decisions made by BP substantially increased

the risks in an already unnecessarily risky situation. The Presidential Commission concluded that

it was neither necessary nor advisable for BP to replace 3,300 feet of mud with sea water. This

increased the stress on the cement job at the bottom of the well. There were numerous options

involving the use of non-cement plugs, setting the cement plug in mud and setting the cement

plug in water closer to the sea floor which would have exerted less stress on the cement job at the

bottom of the well. There is no evidence that any of these options were even considered .

the bottom.

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262. Further, it was not necessary to set the cement plug so far below the sea floor.

Additionally, the BP employee in charge of lockdown sleeves in the Gulf of Mexico had

recommended using heavier more costly piping and placing the plug only 1,300 feet below the

sea floor. This would have greatly increased the margin of safety for the well.

263. The decision by BP to displace the mud from the riser before setting another

barrier dramatically increased the risk of a blowout. According to a 60 Minutes report, based on

interviews with a survivor of the Deepwater Horizon and the government’s expert tasked with

investigating the Deepwater Horizon disaster, BP issued orders that greatly heightened the risk of

a disaster. These orders were issued by senior BP managers. BP knew that it was operating in a

dangerous formation in which extra safety precautions were required, not less. Immediately

before the disaster, BP ordered that the drillers begin extracting the mud from the well before all

of the concrete plugs were put into place. This would speed up the process but meant that

pressure in the well would be highly unstable. According to engineering expert Robert Bea, if

the mud had been left in place, the Deepwater Horizon accident would likely not have occurred.

264. Nevertheless, with a broken blowout preventer, BP ordered a dangerous

procedure to be performed that jeopardized the workers on the Deepwater Horizon, the public

and the environment. This directive was given by BP in order to save money. The results were

catastrophic.

265. Finally, and most troubling, the decision to displace the riser prior to setting other

barriers, including the cement plug, meant that only the primary cement job was between the Pay

Zone and the rig. The result of this decision was that the only well safety guarantees were based

on a faulty negative pressure test and well monitoring during displacement. As discussed, the

85 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 93 of 150

pressure test failed and the human monitoring failed to detect the kick and subsequent blowout

until it was too late.

266. These decisions reflect both a lack of attention to safety measures and a total lack

of systematic procedures and protocols to govern how those decisions are made. There is no

evidence that BP considered alternatives, weighed safety concerns, evaluated risks or sought to

come up with an abandonment plan to which would have avoided or reduced the likelihood of a

blowout.

6. Failure to Detect the Kick

267. Once BP had determined the well was secure and could move forward with

temporary abandonment, they began displacing mud and spacer from the riser. Perhaps the most

important task at this point was to monitor the well, through a slew of technical and video

apparatus, for any unplanned influxes of gas, fluid or other anomalies which would provide an

indication of a “kick.”

268. Early detection of kicks is vital as once indications of gaseous hydrocarbons rising

up the wellbore become apparent, action must be taken quickly and decisively to avoid or limit

the impact of the kick. As the hydrocarbons rise, they expand with ever increasing speed – a

barrel of gas at the Macondo well could expand over a hundred times as it traveled the one mile

between the wellhead and the rig.

269. Crews monitor flow rates, and real time data measuring the volume of mud in the 78 “active pits.” Crews additionally perform visual checks through a number of cameras to

78 The Active Pit System is a series of mud pits (twenty in the case of the Deepwater

Horizon) where fluids can be stored. It is a subset of pits that the driller selects for monitoring purposes.

86 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 94 of 150

determine whether fluids are flowing out of the well. Finally, the crews monitor drill pipe

pressure as a tangential measure indications of kicks. Unexplained changes in drill pipe pressure

are red flags that may indicate a kick and need to be investigated when they occur.

270. Just after 8:00 p.m. the crew began displacing the riser. For an hour, things were

uneventful. However, drill-pipe pressure began increasing just after 9:00 p.m. in an unexpected

and unexplained way. One possible explanation was the beginning of a kick due to hydrocarbons

flowing into the well. This pressure change was not noticed or investigated. At 9:30 p.m. there

was an unexpected pressure difference between the drill pipe and the kill line. In response to this

mounting pressure the crew took action to reduce it and equalize the pressures. However,

nobody performed a visual flow check or shut down the well.

271. Ten minutes later, mud began spewing onto the rig floor. This was the first time

that the crew realized a massive kick had occurred. Action was taken to attempt to reduce the

impact of the kick but the gas was already above the BOP, expanding rapidly as it shot up the

riser. This made an explosion all but inevitable.

272. The Presidential Commission offered three possible explanations for why the

crew did not activate the BOP in time. First, that they did not recognize the severity of the

situation, which seems unlikely given the amount of mud spewing onto the rig; second, that there

simply was not time to act given that the explosion occurred just six minutes after mud emerged

on the rig floor; or third, and most significantly, “the crew had not been trained adequately

how to respond to such an emergency situation .”

7. Failure of the Blowout Preventer

273. The BOP has a series of arms and valves which are designed to seal a well in the

event of an emergency. After the tardy detection of the kick, the BOP was the last resort in

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preventing or lessening the power, force and ultimately the duration of the explosion and

disaster. The crews activated two systems on the BOP just after mud began spewing on the rig

deck. The flow rates coming up the well at this point were likely too high for either of these

systems to seal the well and reduce the likelihood or impact of explosion. Earlier kick detection

could have helped to increase the odds of successfully shutting down the well.

274. After the first explosion, the crew attempted to engage the Emergency Disconnect

System (“EDS”) to sever the drill pipe, seal the well and disconnect the rig. None of this was

successful. This could have been because the initial explosion damaged the BOP preventing the

EDS system from operating properly. Even after this failure, the “deadman” system on the BOP

should have activated. However, there was no power from the rig to the BOP and the last back

up system failed. The Presidential Commission determined that this may have been due to poor

maintenance. Post-incident testing revealed that the “pods” which control the system had very

low battery charges and defective valves. If those problems existed prior to the blowout they

would have prevented the system from working. According to engineering expert Robert Bea,

the malfunctioning of a control pod is like “losing one of your legs.”

275. Importantly, the BOP on the Deepwater Horizon had been significantly modified

by BP. The system was purchased by Transocean in 2001. Subsequently, BP approved

modifications to the BOP despite being warned that it would reduce the safety and effectiveness

of the BOP. In 2004, Transocean sent a letter to BP about those modifications. BP signed and

acknowledged receipt of that letter at the time. The letter indicates that BP acknowledges that

88 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 96 of 150

the conversions it asked for will reduce the built-in redundancy of the BOP and potentially

increase the risk profile. 79

276. Once the BOP failed, there was no way to stop the fire, explosions or leak which

was shooting gas up the well “like a freight train.”

4. DEEPWATER HORIZON EXPLOSION

277. As detailed above, the blowout was the result of several individual missteps and

oversights. When the Deepwater Horizon rig arrived at the Macondo field, the drilling of the

Macondo well already was facing delays and cost overruns after a previous rig, the Marianas, was damaged by a hurricane in the previous fall.

278. Every dollar counted to BP and the Horizon was drilling as fast as it could. Mike

Williams (the rig’s chief electronic technician) explained on CBS’s 60 Minutes that he was

ordered by a BP manager to “bump it up; and what he was talking about there is he’s bumping up

the rate of penetration – how fast the drill bit is going down.” According to Williams, the efforts

to drill too fast caused the base of the well to split open causing a two week delay and costing BP

millions of dollars. Williams stated in response to whether the delay caused added pressure, 80 “There’s always pressure, but yes, the pressure was increased.”

279. By April 20, 2010, the Macondo project was $55 million over budget, leading to 81 tremendous corporate top-down pressure to finish the job and minimize the cost overruns.

79 Role of BP in Deepwater Horizon Explosion and Oil Spill, hearing before the

Subcommittee on Oversight and Investigations, 6/17/10, pages 206-207.

80 Sally Granastein, et al., Blowout: The Deepwater Horizon Disaster, 60 Minutes, New

York: CBS Productions.

81 Joe Carroll, BP Well Was 61% Over Budget Before Drilling-Rig Blast (Bloomberg,

October 6, 2010).

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280. The immediate cause of the explosion was the failure to contain hydrocarbon

pressures inside the well. There were three primary ways to contain those pressures: the cement

at the bottom of the well, the mud in the well and in the riser, and the BOP. However, failures to

appreciate risks and compromises in the process of finalizing the well and preparing for

temporary abandonment greatly reduced the ability of each of those potential barriers. By

steadily depriving the rig crew of safeguards (and the failures in implementing what safeguards

remained), the blowout became an inevitability that turned out to be uncontrollable.

281. In combination, the Presidential Commission concluded, there is “nothing to

suggest that BP’s engineering team conducted a formal, disciplined analysis of the combined 82 impact of these risk factors on the prospects of a successful cement job.”

282. BP’s culture of profits over safety and the pressure to get the Macondo drilling

project done caused workers on the Horizon to make a number of decisions that increased the

risk of an accident. As detailed below, to avoid additional delays and cost overruns, BP workers

at the Horizon did not test the well for a build-up of pressure before starting the process of

capping it with cement.

283. Finally, it is also apparent that there were very few, if any, individual crew

members who were in a position to understand or know of the multitude of risk factors which led

up to the explosion. BP’s failure to coordinate and communicate among different persons and

groups who were performing different, yet related tasks, contributed to risk of disaster.

284. Because there was little coordination, there was little reason for any one person to

suspect that the smaller individual causes would eventually result in an epic disaster. While no

82 Pres Comm Report, Pg. 118.

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singular decision, whether it be the failure to evaluate cement composition or the failed negative

pressure test, or the decision to use a long string rather than a liner alone caused the well blow

out, none of the decisions were consistent with good safety process.

285. According to a confidential expert witnesses on oil rig operational safety and a

former consultant to the BP Board of Directors, (“CW1"), there was a company failure to

implement an appropriate Operations Management Safety protocol which would have ensured

that the individual decision makers at the rig level understood how cost-savings and corner-

cutting could effect the process safety of the Horizon.

286. BP’s failure to plan for a major accident was confirmed by Tony Hayward: “What

is undoubtedly true is that we did not have the tools you would want in your tool kit,” and it was

“an entirely fair criticism” to say the company had not been fully prepared for a deep-water oil

leak.83

G. INTERNAL DOCUMENTS AND TESTIMONY CONFIRM BP CONCEALED

COST-CUTTING RISKING LIVES AND THE ENVIRONMENT

287. Prior to the Deepwater Horizon explosion, internal BP emails revealed mounting

safety worries and managers obsessed with hitting their performance targets, which determined

their bonuses as well as the top down mandate to continually cut costs.

288. According to a June 29, 2010 Wall Street Journal investigation, under Neil Shaw,

the former head of the Gulf of Mexico Operations, bonuses for top managers and low level

workers alike. The engineer said even small costs, like food at lunch meetings got targeted. 84

83 Ed Crooks, BP 'not prepared' for deep-water spill (Financial Times, June 2, 2010).

84 Guy Chazan, et al., “As CEO Hayward Remade BP, Safety, Cost Drives Clashed ,”

(Wall Street Journal, June 29, 2010).

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289. In May 2008, Shaw communicated to his Gulf of Mexico staff that efficiency was

improving in the drilling and completing of wells. According to the Wall Street Journal, Shaw

cited that the number of days it took to drill 10,000 feet was 6% below plan. Idle time had fallen

to 24% of total rig days, from 34% in 2007. In May 2009, he said in another memo that BP’s

output in the Gulf had reached a record 500,000 barrels a day, a year ahead of schedule.

290. According to an internal presentation on Gulf drilling performance dated

April 13, 2010, a week before the Deepwater Horizon explosion, BP’s estimate for 2010 capital

spending on wells in the Gulf fell by $221 million to $2.03 billion. 85

291. However, at the same time capital spending decreased and drilling completion

increased, so did safety incidents. For example, according to August 2009 safety steering

committee minutes, the “Total Recordable Incident Rate,” which normally measured incidents

for every 200,000 man-hours worked was higher than it should be. The rate was 0.97 for the

Gulf drilling unit, over the target of 0.62.

292. In a March 2010 strategy update for investors, BP publicly stated it sought to cut

$500 million from its drilling operations by improving efficiency. Contemporaneously, internal

BP emails from late March 2010 depicted drilling techniques in the Gulf selected because they

would “save[] a lot of time . . . at least 3 days,” “saves a good deal of time/money,” and is the 86 “[b]est economic case.”

85 Id.

86 Email from Brian Morel, BP Drilling Engineer, to Allison Crane, Materials

Management Coordinator, March 25, 2010; Email from Brian Morel, BP Drilling Engineer, to

Sarah Dobbs, Completion Engineer, March 30, 2010.

92 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 100 of 150

293. While BP was representing to investors that it could safely chop hundreds of

millions of dollars from its drilling operations, emails just weeks before the Deepwater Horizon

blowout demonstrated the problems BP employees were facing at the Macondo well which was

identified as a “crazy,” and “nightmare” well.

294. At the time of the blowout, drilling at Macondo was already months behind

schedule, costing BP over $1 million per day in vessel lease and contractor fees and putting them

increasingly over budget. The Deepwater Horizon was tens of millions of dollars over budget.

This excess cost put the Macondo project in conflict with BP’s mandate for 7% reductions in 87 costs for all of its drilling operations in the Gulf of Mexico. In spite of the difficulties and

dangers of drilling in the Gulf and related to Macondo specifically, BP made multiple decisions

about the drilling plan for economic reasons, even though those decisions increased the risk of

the catastrophic failure of the “nightmare” well, and were contrary to representations made to the

investing public.

295. After investigating the disaster, Prof. Robert Bea, an oil industry expert leading

the Deepwater Horizon Study Group, wrote: “Pressures to complete the well as soon as possible

and minimize costs as much as possible are evident in the cascade of decisions and choices that

led to the blowout.”

296. According to BP’s own internal reporting, decisions on the Macondo “appear to

have been made by the BP Macondo team in ad hoc fashion without any formal risk analysis or

internal expert review . . . This appears to have been a key casual factor to the blowout.”

87 Transcript of Testimony before the Joint United States Coast Guard/Bureau of Ocean

Energy Management Investigation, Pg. 58 (December 8, 2010).

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297. Just days before the Macondo well blast, the onshore BP plc manager in charge of

the drilling rig warned his supervisor that last-minute procedural changes were creating “chaos”

on the rig. Alexander John Guide , who directed the Deepwater Horizon’s operations from BP’s

Houston offices, wrote in an email, “The operation is not going to succeed if we continue in this

manner.” Guide’s supervisor, David Sims, responded to Guide by telling him to tell the rig

workers “to hang in there.” Sims signed off the email by saying he was attending dance practice and promised to call the next day.

298. In a follow-up email, Guide wrote, “I totally concur, I told them all we will work 88 through it together. I want to do better.” Three days later the Deepwater Horizon exploded.

299. Fred Bartlit, the general counsel for the Presidential Commission, said Guide’s

email “further confirms the commission’s finding that BP poorly managed last-minute design and procedural changes at Macondo.”

300. Contrary to its public statements, this chaos was caused by BP’s failure to have a

system(s) place that would insure the gulf drilling could be done in a safe environment. For

example, on April 17, Guide sent an email to Sims complaining that “there has been so many last

minute changes to the operation” and that the rig’s on-board managers had “finally come to their

wits end.” Sims replied to Guide saying the team working on the well should stay positive “until this well is over.”

301. Additionally, BP: (1) consciously elected not to install an acoustically activated

remote-control shut-off valve, costing only $500,000, to the well and (2) chose not to install a

deep-water valve that would have been placed about 200 feet under the sea floor. BP ignored

88 Ben Casselman, et al., Shifting Procedures Upset BP’s Rig Team (Wall Street Journal,

Jan. 29, 2011).

94 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 102 of 150

these precautions despite being well aware of the increased risk of a failure of the primary

blowout safety mechanism, the blowout preventer, from deep-sea operators. 89

302. Moreover, BP should have known the importance of a fully functioning blowout

preventer. According to a 2004 study by federal regulators showed that blowout preventers may

not function in deepwater drilling environments because of the increased force needed to pinch

and cut the stronger pipes necessary to drill at such great depths. Additionally, over ten years

ago, the MMS sent out an industry-wide safety alert ordering companies drilling in deep water in

the outer continental shelf to have effective backup systems. The March 2000 notice stated: “The

MMS considers a backup [blowout preventer] actuation system to be an essential component of a

deepwater drilling system, and therefore expects OCS operators to have reliable back-up systems

for actuating the [blowout preventer].”

303. MMS, however, left it up to the individual companies to decide what kind of

backup system to use. BP chose the cheapest method, electing not have a backup system for

activating the blowout preventer on the Deepwater Horizon.

304. While, BP publicly represented it had implemented systematic changes to its

safety processes, those representations do not comport with the actions taken on the Deepwater

Horizon which demonstrate a company that when faced with the choice of a cheaper and quicker

or safer, chose the cheaper and quicker every time.

305. For example, according to the NAE and Presidential Commission, gas and fire

detection sensors and the shutoff systems were not operating in the engine room of the

89 Russell Gold, et al., Leaking Oil Well Lacked Safeguard Device (Wall Street Journal,

April 28, 2010).

95 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 103 of 150

Deepwater Horizon. According to BP’s own internal reporting, these same important pieces of

safety equipment were lacking at BP facilities as far back as 2001.

306. BP repeatedly ignored warnings from their own employees and contractors on the

Deepwater Horizon, all in order to reduce costs and save time on the behind-schedule and

over-budget Macondo well. Testimony of employees and documents referenced above highlight

the time pressure BP was putting on workers as it rushed them to finish quickly so the well could

be sealed and BP could begin extracting oil and move the Horizon to the next Gulf of Mexico

lease.

307. This emphasis on speed and cost savings over safety led to actions that were

contrary to BP’s public representations of safety as BP’s No. 1 priority during the Subclass

period but is consistent with BP’s 2009 spending 0.0033 percent of its revenues on research and

development regarding safer offshore drilling technologies.

1. DEEPWATER HORIZON’S TATTERED SAFETY AND MAINTENANCE

RECORD

308. The Deepwater Horizon was leased to BP for drilling exploratory wells at the

Macondo prospect site, pursuant to the December 9, 1998, Drilling Contract between Transocean

and BP.90

309. Prior to the Spill, BP was on notice that Transocean’s safety performance during

offshore drilling operations was deficient. Transocean CEO Steven L. Newman admitted prior to

90 The parties to the 1998 Drilling Contract, Vastar Resources, Inc. and R&B Falcon

Drilling Co., are now BP and Transocean entities, respectively. The Deepwater Horizon,

formerly known as RBS-8D, was in the process of being built for R&B Falcon Corp. between

1998 and 2001, during which time Transocean purchased R&B Falcon Corp. Upon completion,

the Deepwater Horizon was delivered to Transocean. BP America is a successor-in-interest to

Vastar Resources, Inc. Amendments to the Drilling Contract were subsequently signed by

representatives of Transocean and BP.

96 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 104 of 150

91 the Spill that “we have to improve our safety performance.” Just a month before the Spill, in

response to “a series of serious accidents and near-hits within the global organization,”

Transocean commissioned a broad review of the safety culture of its North American operations,

including the Deepwater Horizon.

310. In September 2009, a BP audit team concluded an audit of Deepwater Horizon and found excessive overdue maintenance, totaling 390 separate jobs and 3,545 man hours.

Many were deemed high priority. Thirty-one jobs included findings that were related to well

control system maintenance, six related to BOP maintenance, and additional problems were

noted related to the electronic alarm systems, ballast systems used to stabilize the vessel in the

water, and other significant deficiencies that could “lead to loss of life, serious injury or 92 environmental damage as a result of inadequate use and/or failure of equipment.” All findings

were outstanding as of December 2009. This audit was or should have been known to

Defendants but was concealed from Plaintiffs.

311. The audit also expressed concern for the safety culture on the rig: “An annual

health and safety plan was not in place although a number of safety goals were listed, but they were not commonly known and not widely communicated.” 93

91 Clifford Krauss and Tom Zeller Jr., A Behind-The-Scenes Firm in the Spotlight , (NY

Times, Mary 24, 2010).

92 CBS News: Report: Oil Rig Co. Had Issues at 3 More Wells, (Aug. 5, 2010).

93 Danny Fortson, BP’s Deepwater Horizon had history of shortcomings , (The

Australian, Aug. 9, 2010).

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312. In a glaring example of BP’s reckless disregard for safety, BP’s regional mitigation plan was cut and pasted from a mitigation plan developed for drilling in Alaska, and

listed a long-deceased expert as the person to be contacted in the event of an emergency.

2. PRESIDENTIAL COMMISSION FINDS BP LACKED SUFFICIENT

SAFETY PROCESSES AND IMPROPERLY ELEVATED PROFITS OVER

SAFETY

313. A key finding of the Commission was that BP repeatedly placed profits over

safety, implementing procedures that greatly increased risk, primarily in order to avoid the expense of delay. 94

314. In relevant part:

Decisionmaking processes at Macondo did not adequately ensure that personnel fully considered risks created by time– and money– saving decisions .

There is nothing inherently wrong with choosing a less-costly or

less-time-consuming alternative—as long as it proves to be equally safe. The

problem is that, at least in regard to BP’s Macondo team, there appears to have

been no formal system for ensuring that alternative procedures were in fact equally safe.

None of BP’s [] decisions in Figure 4.10 appear to have been subject to

comprehensive and systematic risk-analysis, peer-review, or management of

change process. The evidence now available does not show that the BP team

members (or other companies’ personnel) responsible for these decisions

conducted any sort of formal analysis to assess the relative riskiness of available alternatives.

94 Pres. Comm. Report, Pg. 125, Figure 4.10: Examples of Decisions That Increased Risk at Macondo While Potentially Saving Time.

98 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 106 of 150

Corporations understandably encourage cost-saving and efficiency. But given the

dangers of deepwater drilling, companies involved must have in place strict

policies requiring rigorous analysis and proof that less-costly alternatives are in

fact equally safe. If BP had any such policies in place, it does not appear that its

Macondo team adhered to them. Unless companies create and enforce such

policies, there is simply too great a risk that financial pressures will systematically bias decisionmaking in favor of time and cost savings.

* * *

Of course, some decisions will have shorter timelines than others, and a

full-blown peer reviewed risk analysis is not always practicable. But even where

decisions need to be made in relatively short order, there must be systems in place

to ensure that some sort of formal risk analysis takes place when procedures are

changed, and that the analysis considers the impact of the decision in the context

of all system risks. If it turns out there is insufficient time to perform such an

analysis, only proven alternatives should be considered.

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315. While BP claimed in its public filings and public statements that it had sufficient

safety processes and systems the Presidential Commission, after six months of analysis

concluded that BP lacked sufficient safety processes and systems and repeatedly placed profits over safety.

316. The Commission further determined that the Macondo well explosion was fundamentally based on a failure of management and safety process.

Most, if not all, of the failures at Macondo can be traced back to underlying

failures of management and communication. Better management of

decisionmaking processes within BP and other companies, better communication

within and between BP and its contractors, and effective training of key

engineering and rig personnel would have prevented the Macondo incident. BP

and other operators must have effective systems in place for integrating the

various corporate cultures, internal procedures, and decisionmaking protocols of

the many different contractors involved in drilling a deepwater well.

BP’s management process did not adequately identify or address risks

created by late changes to well design and procedures . BP did not have

adequate controls in place to ensure that key decisions in the months leading up to

the blowout were safe or sound from an engineering perspective. While initial

well design decisions undergo a serious peer review process and changes to well

design are subsequently subject to a management of change (MOC) process,

changes to drilling procedures in the weeks and days before implementation are

typically not subject to any such peer-review or MOC process. At Macondo, such

decisions appear to have been made by the BP Macondo team in ad hoc fashion

without any formal risk analysis or internal expert review. This appears to have

been a key causal factor of the blowout.

A few obvious examples, such as the last-minute confusion regarding whether to

run six or 21 centralizers, have already been highlighted. Another clear example

is provided by the temporary abandonment procedure used at Macondo. As

discussed earlier, that procedure changed dramatically and repeatedly during the

week leading up to the blowout. As of April 12, the plan was to set the cement

plug in seawater less than 1,000 feet below the mud line after setting the

lockdown sleeve. Two days later, Morel sent an e-mail in which the procedure

was to set the cement plug in mud before displacing the riser with seawater. By

April 20, the plan had morphed into the one set forth in the “Ops Note”: the crew

would remove 3,300 feet of mud from below the mud line and set the cement plug

after the riser had been displaced.

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There is no readily discernible reason why these temporary abandonment

procedures could not have been more thoroughly and rigorously vetted earlier in

the design process. It does not appear that the changes to the temporary

abandonment procedures went through any sort of formal review at all.

317. In sum, BP had no competent system or policy in place that would assist

employees at the rig level with decision making in emergency situations. There was no effective risk management. There was no emphasis on safety processes.

3. GOVERNMENTAL TESTIMONY CONFIRMS BP’S CONCEALED

CORPORATE ETHOS OF PROFITS OVER SAFETY

318. The House of Representatives Subcommittee on Oversight and Investigations,

Committee on Energy and Commerce investigated the causes of the Deepwater Horizon disaster.

The subcommittee reviewed tens of thousand of internal BP documents, conducted

numerous interviews and received tens of hours of briefings by corporate, governmental, and academic experts .

319. After this investigation, Chairman Waxman stated “[t]hey [internal BP

documents] appear to show that BP repeatedly took shortcuts that endangered lives and increased

the risks of a catastrophic blowout.”

When you became CEO of BP, you promised to focus “like a laser on safe and

reliable operations.” We wanted to know what you had done to keep this promise,

so we asked what emails you had received, what documents you had reviewed

about the Deepwater Horizon rig or the Macondo well before the blowout.

Deepwater drilling is inherently dangerous. As the entire country now knows, an uncontrolled blowout can kill rig workers and cause an environmental disaster.

We wanted to know whether you were briefed about the risks and were monitoring

the safety of the drilling operation.

We could find no evidence that you paid any attention to the tremendous risks

BP was taking. We have reviewed 30,000 pages of documents from BP,

including your emails. There is not a single email or document that shows you

paid even the slightest attention to the dangers at this well.

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You are the CEO, so we considered the possibility that you may have delegated the

oversight responsibility to someone else. We reviewed the emails and briefing

documents received by Andy Inglis, the chief executive for exploration and

production, and , the chief operating officer for exploration and

production and the person now leading BP's response to the spill.

According to BP, these are the senior officials who were responsible for the

Macondo well. But they, too, were apparently oblivious to what was

happening. We can find no evidence that either of them received any emails or

briefings about the Deepwater Horizon rig or drilling activities at the well.

BP's corporate complacency is astonishing . * * *

The drilling engineer for the rig called Macondo a “nightmare well.” Other BP

employees predicted that the cement job would fail. Halliburton warned of a

“SEVERE gas flow problem.” These warnings fell on deaf ears .

BP’s corporate attitude may be best summed up in an email from its operations

drilling engineer who oversaw BP's team of drilling engineers. After learning of

the risks and BP's decision to ignore them, he wrote, quote, “Who cares, it’s done,

end of story, will probably be fine,” end quote.

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.

320. Chairman Stupak, in an attempt to piece together what went wrong with BP’s

exploration of the Macondo well offered the following statement: “I am concerned that the

corporate culture , from BP CEO Tony Hayward down to Chairman and President of BP

America Lamar McKay, and Chief Operating Officer Doug Suttles and possibly down to the 95 leadership on exploration rigs reflects a willingness to cut costs and take greater risks.”

321. Congressperson Shakowsky: “As the ongoing investigation by this committee has

already discovered, BP executives created an atmosphere where safety concerns were ignored

95 House Subcommittee on Energy and Commerce, Rep. Bart Stupak Opening Statement

(June 17, 2010).

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in order to ensure that the company's already staggering profits this year, approximately $93

million a day in the first quarter, continued unabated. This appalling disregard for the Gulf Coast

and its inhabitants is without question one of the most shameful acts by a corporation in American

history.96

322. Congressman Welch: “And the question I think many of us have is

whether a CEO who has presided over a company that has incurred $370 million in criminal fines;

whose company, according to independent assessors, has one of the worst records in the world for

safety and consistently puts money ahead of safety; whose peers, including Mr. Tillerson from

Exxon Mobil, who testified from where you are 2 days ago they never – never would

have drilled a well the way it did at BP Deepwater Horizon ; and who, as CEO, has presided

over the destruction of nearly $100 billion in shareholder value and the suspension of an annual

$10 billion dividend; does that leader continue to enjoy and have a valid claim on the trust and

confidence of his employees, his shareholders, the public regulators and, most importantly, the

families and small businesses of the Gulf Coast, or is it time, frankly, for that CEO to consider to 97 submit his resignation”

323. Congressman Sullivan: I would say that this problem is with your organization

and your safety and the culture of your company’s safety culture , and not a culture of our

domestic oil and gas producers. As we can see, they haven't had the kind of problems you have

had with cutting corners on safety . They have a lot of redundancies, contingency plans. I

96 House Subcommittee on Energy and Commerce, The Role of BP in the Deepwater

Horizon Explosion and Oil Spill, at Pg. 39 (June 17, 2010).

97 Id. at 52-53.

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venture to say that this may not have happened if one of these other companies was operating that rig.98

324. The following exchange between Congressman Sutton and Hayward is telling as to

the Congressional findings regarding BP’s public representations of commitment to safety and its concealed efforts to cut costs at the expense of safety.

Congressman Sutton: You talked about the importance of safety and the

environment, but you presided over a corporate culture where safety and

risks and risks to the environment were ignored in order to save a few days

and a few dollars in drilling costs . If you are the leader of the company, don't

you have to take responsibility?

Mr. Hayward: I am absolutely responsible for the safety and reliable

operations in BP. That is what I have said all along.

325. Congressman Stupak:

“Time after time, BP had warning signs that this was, as one employee put it, a ‘nightmare well.’” BP made choices that set safety aside in exchange for cost-

cutting and time-saving decisions .

For example: BP disregarded questionable results from pressure tests after

cementing in the well.

BP selected the riskier of two options for their well design. They could have hung

a liner from the lower end of the casing already in the well and install a tieback on

the top of the liner, which would have provided additional barriers to the release of

hydrocarbons. Instead, they lowered a full string of new casing, which took less

time and cost less but did not provide the same protection against escaping

hydrocarbons.

BP was warned by their cement contractor Halliburton that the well could have a

“SEVERE gas flow problem” if BP lowered the final string of casing with only six

centralizers instead of the 21 Halliburton recommended. BP rejected Halliburton’s

advice to use additional centralizers. In an email on April 16th, a BP official

involved in the decision explained, and I quote, "It will take 10 hours to install

them. I do not like this," end of quote. BP chose not to fully circulate the mud in

98 Id. at 89.

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the well from the bottom to the top, which was an industry-recommended best

practice that would have allowed them to test for gas in the mud.

BP chose not to use a casing hanger lockdown sleeve, which would have provided

extra protection against a blowout from below.

326. Internal BP documents produced to Congress confirmed that BP put

costs ahead of safety. “ Because we have also talked about some documents that the

committee has unearthed, and document after document that indicated that BP officials in

charge of the Deepwater Horizon were focused on saving time and money – for example, the

document that says that the well design was chosen because it would save $7 million to $10

million” according to Congressman Sutton. 99

4. THE NATIONAL ACADEMY OF ENGINEERING NATIONAL

RESEARCH COUNCIL AND DEEPWATER HORIZON STUDY GROUP

CONFIRM THAT BP RECKLESSLY ELEVATED PROFITS OVER

SAFETY

327. The National Academy of Engineering and National Research Council’s (“NAE”)

November 16, 2010 Interim Report to the Department of Interior echoes the safety lapses of BP’s past and confirms the findings of BP’s recklessness.

328. The Report stated in relevant part that “numerous decisions to proceed toward

abandonment despite indications of hazard, such as the results of repeated negative-pressure tests,

suggest an insufficient consideration of risk and a lack of operating discipline .”100

329. Moreover, the panel determined that BP suffered a lack of “management

discipline” and problems with “delegation of decision making” on board the Deepwater

99 Role of BP in Deepwater Horizon Explosion and Oil Spill, hearing before the Subcommittee on Oversight and Investigations, 6/17/10, Pg.150.

100 NAE Interim Report at 3.

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Horizon. Workers aboard the drilling vessel were often unsure about who was actually in charge, 101 and there was a “lack of on board expertise and of clearly defined responsibilities.”

330. The Deepwater Horizon Study Group 102 found that BP’s Macondo team’s actions

reflected “gross imbalances between production and protection incentives” and manifested in

“actions reflective of complacency, excessive risk-taking, and a loss of situational awareness.”

331. The sole consistent theme through all of BP’s disasters is the corporate cultural

contribution of profit over safety and decisions made with indifference to the foreseeably tragic

results to human lives, the environment, and its shareholders.

5. INDUSTRY PEERS CONFIRM THAT BP’S SAFETY AND RISK

MANAGEMENT PROCESSES WERE BELOW INDUSTRY STANDARDS

332. In testimony before Congress, executives of four major oil companies testified that

BP’s operations were deficient and below industry standards. As Exxon Mobil Chairman, Rex

Tillerson, succinctly put, “We would not have drilled the well the way they did.”

333. Similarly, Anadarko’s chief executive, Jim Hackett, stated “The mounting

evidence clearly demonstrates that this tragedy was preventable and the direct result of BP’s

reckless decisions and actions.” Hacket added that he was “shocked” to find that BP “operated

101 Id. at 14.

102 The Deepwater Horizon Study Group was formed by members of the U.C. Berkeley

Center for Catastrophic Risk Management in May 2010 in response to the explosion and fire at the Deepwater Horizon well on April 20, 2010. The group is comprised of more than sixty faculty members from the University of California and other institutions, accident investigators, petroleum engineers, social scientists, environmental advocates, and directors of research centers. At the request of the House of Representatives Subcommittee on Oversight and

Investigations, Committee on Energy the Group has provided findings and conclusion regarding the causes and consequences of the Deepwater Horizon disaster.

106 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 114 of 150

unsafely and failed to monitor and react to several critical warning signs during the drilling of the

Macondo well.”

H. ADDITIONAL EVIDENCE OF BP’S CONCEALED GULF OPERATIONAL PROBLEMS

1. BP CONCEALED THAT SAFETY PROCESSES HAD YET TO BE

IMPLEMENTED IN THE GULF OF MEXICO

334. BP began implementing an Operational Management System (“OMS”) to address

process safety in its Gulf Operations in 2008. Contrary to its representations to the investing

public, by 2009 and 2010, the program was still in its infancy stages and yet to be fully

implemented in the Gulf. According to Confidential Witness 2 (“CW2"), a former BP senior

manager and an expert in the offshore oil and gas drilling and completions, BP’s OMS lagged far behind its peers (e.g. Chevron and Exxon) in 2009.

335. In the fourth quarter of 2009 and in January 2010, BP, as part of a global cost-

cutting restructuring, reorganized the drilling operations unit for the Gulf of Mexico. According

to CW2, the global reorganization was attributable to decisions made by Defendant Inglis and BP

America Chief Operating Officer Doug Suttles. A consequence of the restructuring was the

termination or forced transfer for those chiefly responsible for BP’s Gulf Operations, including but not limited to safety processes and the implementation of BP’s OMS in the Gulf of Mexico.

As a consequence, BP’s safety processes in 2010 were not as BP represented them to be. Further

as described below, the individuals brought in to both implement BP’s OMS and manage BP’s

Gulf Operations lacked the knowledge, experience and expertise of those they were replacing.

107 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 115 of 150

108 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 116 of 150

336. According to CW2, this restructuring was implemented despite concerns raised by

CW2 and other senior BP employees in the Gulf regarding BP’s ability to conduct its operations

safely in the Gulf, including but not limited to the implementation of BP’s OMS. These issues

were addressed to Barbara Yilmaz who had direct reporting responsibilities to BP’s Board of

Directors.

337. Ian Little was the Gulf of Mexico wells manager for BP. Little was replaced by

David Sims who, according to CW2, lacked Little’s knowledge and expertise. Despite this, Sims

was required to make decisions regarding not only management of the well, but manage the

response to the Horizon’s explosion.

338. Prior to becoming Vice President of Drilling and Completions, London in

December 2009, Harry Thierens served from 2006-2009 as the well director for the Gulf of

Mexico. He managed the engineering and operations group in the Gulf of Mexico. Thierens was

replaced by David Rich, who according to CW2 lacked the expertise of Thierens.

339. When the Horizon disaster occurred, Thierens was called back to deal with the

fallout. Thierens testified in Houston before a federal panel and said that the plumbing on the

blowout preventer was connected improperly. He said that the plumbing line that was supposed

to be connected to one of the rams meant to cut off a runaway well was actually connected to a

test ram that would be of no use in containing the well. Thierens’ log showed his bewilderment

that the blowout preventer had been modified and noted that he had immediately met with

Transocean engineer William Stringfellow, Jr. and others working to choke the well: “When I

learned this news I lost all faith in this BOP stack plumbing. Billy Stringfellow, clearly emotional

109 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 117 of 150

103 told me ‘this stack is plumbed wrong’,” Thierens wrote. The plumbing issue affected efforts to

jump-start the preventer using underwater robots but not the initial effort to trigger the preventer

from the burning rig. When Thierens was asked about the chain of command on the rig, he said

he didn’t know. 104 How could he, he was replaced the previous December.

340. Kevin Lacy was the vice president of Drilling and Completions for BP until

December 15, 2009 when he was terminated. Lacy, who worked in exploration and production

for thirty years, was replaced by Patrick O’Bryan.

341. According to CW1 and CW2, O’Bryan lacked Lacy’s experience and expertise.

According to CW2, by 2009 and 2010, BP had still not implemented a robust operations

management system to insure offshore processes could be managed effectively for both

exploration and risk. Given the difficulties of Gulf exploration this invited disaster.

342. Four days before the explosion, BP had ordered its veteran well site leader back to

Louisiana for routine training and replaced him with Robert Kaluza. When U.S. Coast Guard

Capt. Hung Nguyen question the Transocean Rig Manager Paul Johnson who the head of BP’s

chain of command was on the Horizon, Johnson could not readily identify the person and stated

“We didn’t know who this gentleman was . . . I asked who was Mr. Kaluza. Where did he come

from? I asked about his deep-water experience during ... a critical phase of the well.” BP

officials assured Johnson that Kaluza was “an accomplished well site leader.” 105

103 David S. Hilzenrath, BP executive says blowout preventer was not connected properly, (Washington Post, Aug. 25, 2010).

104 Transcript of Testimony before the Joint United States Coast Guard/Bureau of Ocean

Energy Management Investigation, pages 77-78, 82, 106-107 (Aug. 25, 2010).

105 Transcript of Testimony before the Joint United States Coast Guard/Bureau of Ocean

Energy Management Investigation, Pgs. 258-259 (Aug. 23, 2010).

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343. A BP audit report of the Horizon found: (1) Not all relevant personnel on the rig

were knowledgeable about drilling and well operation practices; (2) A review showed significant

overdue maintenance jobs that required more than 3,545 man hours; (3) No single person on

board the rig could account for which alarms had been disabled and for what reason; and (4) A

warning on under-staffing was issued, saying that any further reduction of experienced personnel

may be “detrimental to the performance of the rig.” 106

2. EXPERTS AND CONFIDENTIAL WITNESSES CONFIRM THAT,

CONTRARY TO ITS REPRESENTATIONS, BP FAILED TO

IMPLEMENT SAFETY OPERATIONS IN THE GULF OF MEXICO

344. According to CW2 and CW3, both experts in oil company operations safety and

former consultants to BP’s Board of Directors, by no later than 2005, BP had recommended and

approved “Best Practices” for its operations. Contrary to its public statements during the Subclass

Period, BP failed to implement them. According to CW3, while BP distributed this roadmap to

some downstream operations, it contemporaneously slashed their budgets by 25% and provided

no resources by which to implement the safety processes. Further, according to CW3, BP’s

Upstream businesses (e.g. offshore exploration) never received any information related to any

suggested cures for BP’s endemic safety process and risk management problems.

345. According to CW3, BP failed to implement best practices, such as hiring personnel

experienced in safety and risk management, implementing operational safety policies with budgetary support and not cost cutting on safety issues.

346. Indeed, it was only last month that BP’s current CEO, , finally

created a global safety division to deal with BP’s systemic safety and risk management

106 Rong-Gong Lin II, Chaos described as BP hearings resume, (LA Times, Aug. 24,

2010).

111 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 119 of 150

problems. This division was suggested to BP’s Board of Directors, including by confidential

witnesses, as early as 2001 and by governmental prosecutors through and including the present.

347. According to one reporter, there was division between the London and United

States operations regarding BP’s failure to comply with public assurances concerning its safety

and risk management practices. While the U.S. leaders wanted to put more emphasis on safety,

their counterparts in London discounted the recommendation because it was coming from

Americans. Accordingly, even if BP had aspirations of fixing its internal culture as it related to

safety and processes the statements that “Hayward and other executives were making about

improving safety weren’t being fully implemented.” 107

348. While BP insisted it had learned from its mistakes, that safety was a priority and

that managers were rewarded for safe operations as well as performance, Harry Thierens, BP’s

vice president for drilling and completions, in his testimony before Congress, could not recall

what BP had done to improve safety after the Texas City explosion. 108

349. It is apparent that even if Hayward did stress BP’s commitment to safety – given

the three criminal investigations, the Baker Report and the final U.S. Chemical Safety Board

Report how could he not – BP’s actual philosophy during the Subclass Period was actually to

continue the same plans that existed under John Browne. BP pushed for the most lucrative oil

deposits in the Gulf, but intentionally cut costs and failed to implement safety processes to

account for the engineering challenges BP encountered.

107 Loren C. Steffy, Drowning in Oil: BP & the Reckless Pursuit of Profit (McGraw-Hill

2010), Pg. 152.

108 Transcript of Testimony before the Joint United States Coast Guard/Bureau of Ocean Energy Management Investigation, Pg. 65 (Aug. 25, 2010)..

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350. Under Hayward’s stewardship, BP slashed $4 billion in expenses in 2009 and spent

0.0033 percent of BP revenues on research and development regarding safer offshore drilling

technologies.

351. Despite Hayward’s vows to make safety a priority, BP’s management structure

“was still convoluted, accountability was hard to find . . . and cost cutting and financial performance continued to overshadow operations.” 109

VI.

MISREPRESENTATIONS AND OMISSIONS DURING

THE SUBCLASS PERIOD

352. Beginning on March 4, 2009, BP began to highlight the safety and success of its

operations in the Gulf of Mexico, touting the fact that it was one of the largest deepwater

operators in the world. At the same time, BP failed to disclose that it had not implemented safety

measures for its Gulf of Mexico operations, disregarded warnings about its operations, and lacked

robust risk management processes that left the Company dangerously exposed.

A. 2008 FORM 20-F ANNUAL REPORT

353. On March 4, 2009, BP filed with the SEC its 2008 Form 20-F which included the

following representations on safety and risk management:

Safety

This section reviews BP’s safety performance in 2008.

There were five workforce fatalities in 2008, compared with seven in 2007. One

resulted from fatal injuries sustained during operations at our Texas City refinery;

one was the result of a fall from height at the Tangguh operations in Indonesia; one

109 Loren C. Steffy, Drowning in Oil: BP & the Reckless Pursuit of Profit (McGraw-Hill

2010), Pg. 160.

113 Case 4:10-md-02185 Document 112 Filed in TXSD on 02/11/11 Page 121 of 150

fatality was on a land farm near Texas City, and two were driving fatalities

incidents in Mozambique and South Africa. We deeply regret this loss of life. By

learning from these incidents and implementing appropriate improvement actions,

we continue to seek to secure the safety of all members of our workforce. Our

workforce reported recordable injury frequency, which measures the number of

injuries per 200,000 hours worked, was 0.43 in 2008. This was a good

improvement on the rate of 0.48 recorded in both 2007 and 2006.

Throughout 2008, senior leadership across the group continued to hold safety

as their highest priority. Site visits, in which safety was a focus, were undertaken

by the group chief executive (GCE) and members of the executive team to

reinforce the importance of their commitment to safe and reliable operations.

Management systems

We continue to implement our new operating management system (OMS), a

framework for operations across BP that is integral to improving safety and

operating performance in every site.

When fully implemented, OMS will be the single framework within which we will

operate, consolidating BP’s requirements relating to process safety, environmental

performance, legal compliance in operations, and personal, marine and driving

safety. It embraces recommendations made by the BP US Refineries Independent

Safety Review Panel (the panel), which reported in January 2007 on safety

management at our US refineries and our safety management culture.

The OMS establishes a set of requirements, and provides sites with a systematic

way to improve operating performance on a continuous basis. BP businesses

implementing OMS must work to integrate group requirements within their local

system to meet legal obligations, address local stakeholder needs, reduce risk and

improve efficiency and reliability. A number of mandatory operating and

engineering technical requirements have been defined within the OMS, to address

process safety and related risks.

All operated businesses plan to transition to OMS by the end of 2010. Eight sites

completed the transition to OMS in 2008; two petrochemicals plants, Cooper River

and Decatur, two refineries, Lingen and Gelsenkirchen and four Exploration and

Production sites, North America Gas, the Gulf of Mexico, Colombia and the

Endicott field in Alaska. Implementation is continuing across the group and a

number of other sites, including all refineries not already operating the OMS, are

expected to complete the transition in 2009.

For the sites already involved, implementing OMS has involved detailed planning,

including gap assessments supported by external facilitators. A core aspect of

OMS implementation is that each site produces its own ‘local OMS’, which takes

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account of relevant risks at the site and details the site’s approach to managing

those risks. As part of its transition to OMS, a site issues its local OMS handbook,

and this summarizes its approach to risk management. Each site also develops a

plan to close gaps that is reviewed annually. The transition to OMS, at local and

group level, has been handled in a formal and systematic way, to ensure the change

is managed safely and comprehensively. Experience so far has supported our

expectation that having one integrated and coherent system brings benefits of

simplification and clarity, and that the process of change is supporting our renewed

commitment to safe operations.

We are on track to meet our target of implementing OMS across the group by the

end of 2010.

Capability development

In addition to ongoing training programmes we are undertaking a group wide

programme to enhance the capability of our staff from front line to executive level

to deliver operational excellence.

Almost 1,000, around a third, of our front-line supervisors have started the

Operating Essentials programme, which includes training on leadership, process

safety, operating culture, practices and coaching and effective performance

conversations.

More than 190, around half, of our operations leaders started the Operations

Academy programme in 2008. The academy, which has been established in

partnership with the Massachusetts Institute of Technology (MIT), provides

participants with a total of six weeks of operations training, concentrating on the

management of change and continuous improvement.

The Executive Operations programme, which seeks to increase insight into

manufacturing and operation activities among senior business leaders, has built on

its successful launch with the first group, which included the group chief executive

and his executive team. By the end of 2008, 99 executives had attended the

three-day programme.

In addition, new cadres of projects and engineering staff have progressed through

the Project and Engineering Academy at MIT and 13 process safety courses have

been delivered for project and project engineering managers at the Project

Management College. We have continued to develop training on hazard evaluation

and risk assessment techniques for all engineers, operators and HSSE

professionals.

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Process safety management

We remain fully committed to becoming a recognized industry leader in

process safety management and are working to achieve this. We have taken a

range of steps, including acting on the recommendations from both the panel and

those within the first annual report of expert.

Our actions can be summarized in three principal areas:

• We have made progress in reducing process safety risk at our US

refineries. For example, we have completed and learned from safety and

operations audits, relocated workers to lower-risk accommodation and

implemented fatigue reduction programmes.

• Executive management has taken a range of actions to demonstrate their

leadership and commitment to safety. The group chief executive has

consistently emphasized that safety, people, and performance are our top

priority, a belief made clear in his 2007 announcement of a forward agenda

for simplification and cultural change in BP. Safety performance has

been scrutinized by the Group Operations Risk Committee (the

GORC), chaired by the group chief executive and tasked with assuring

the group chief executive that group operational risks are identified

and managed appropriately. We continued to build our team of safety

and operations auditors. A team of 45 auditors is now in place, with 36

audits completed in 2008.

• Many of the process-safety related improvements recommended by the

panel are being implemented across the group through the OMS. The

group essentials within the OMS (which cover diverse aspects of operating

activity including legal compliance, process and environmental safety and

basic operating practices) in some cases go beyond the panel’s process

safety recommendations, a point noted by the independent expert in his first

report.

In addition to action in these areas, we have continued to participate in

industry-wide forums on process safety and have made efforts to share our learning

with other organizations.

The independent expert has been tasked with reporting to the board on BP’s

progress in implementing the panel’s recommendations. We welcome the

independent expert’s view expressed in his first report (May 2008) that BP appears

to be making substantial progress in changing culture and addressing needed

process safety improvements’. However, we also acknowledge his observation

that ‘a significant amount of work remains to be done on the process safety

journey’ and that ‘successful completion of the task will require the continued

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support and involvement of the board, executive management, and refinery

leadership along with a sustained effort over an extended period of time’. The

independent expert’s second report is expected in the first half of 2009.

Operational integrity

We continue to implement the six-point plan launched in 2006 to address

immediate priorities for improving process safety and minimizing risk at our

operations worldwide.

We have met our commitment to remove occupied portable buildings (OPBs) from

high-risk zones within onshore process plant areas and to remove all blow-down

stacks in heavier-than-air, light hydrocarbon service. All major sites and our fuels

value chains have completed major accident risk assessments, which identify major

accident risks and develop mitigation plans to manage and respond to them.

We continue to implement the Control of Work and Integrity Management

standards. We have made progress in ensuring our operations meet the

requirements of a group framework designed to ensure we stay in compliance with

legal requirements on health and safety. We are continuing to take steps to close

out past audit actions. Leadership competency assessments, which involve

assessment of the experience of BP management teams responsible for major

production sites or manufacturing plant, have been completed in Exploration and

Production and in all major Refining and Marketing manufacturing sites.

Implementation of these actions is expected to be largely complete by the end of

2009, with some aspects of implementation being incorporated into the transition

to the OMS, expected to be completed by the end of 2010. The GORC regularly

monitors progress against the plan.

We monitor and report separately on major incidents such as those covering fatal

accidents, significant property damage or significant environmental impact. We

also track and analyze ‘high potential’ incidents – those that could have resulted in

a major incident. All major incidents and many high-potential incidents are

discussed by the GORC and we continue to seek to learn as much as possible from

each incident.

A total of 21 major incidents were reported in 2008. Two of the major incidents

were related to hurricanes and eight were related to driving incidents.

There were 335 oil spills of one barrel or more in 2008, similar to 2007

performance of 340 oil spills. The volume of oil spilled in 2008 was

approximately 3.5 million litres, an increase of 2.5 million litres, compared with

2007. This was largely the result of two incidents, one at Texas City and one at the

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Whiting refinery, which accounted for two-thirds of the total reported volume of

oil spilled, the great majority of which remained contained and the oil recovered.

Performance indicators

We have well-developed systems, processes and metrics for reporting personal

safety and environmental metrics that support internal performance management as

well as public reporting.

We introduced several new metrics in 2008 that aim to enhance our monitoring of

process safety performance within BP’s operating entities. These include, for

example, a process safety incident index, as recommended by the panel, which uses

weighted severity scores to record and assess process safety events, and a measure

to record any loss of hydrocarbon from primary containment.

Our indicators include industry-aligned ‘lagging’ process safety metrics that

register events that have already occurred, and ‘leading’ indicators that focus on

the strength of our controls to prevent undesired events in future. A suite of

indicators is regularly reported to the GORC within the quarterly ‘HSE and

Operations Integrity Report’ and several new metrics have also been piloted. To

further enhance the management of health risks across the group, we began the

systematic reporting of recordable illness rates within the HSE and Operations

Integrity Report. We continue to work with industry bodies such as the Centre for

Chemical Process Safety and the American Petroleum Institute on the development

of process safety metrics, definitions and guidance.

Continuing to focus on health

In addition to our efforts to improve process safety performance, we strive to

protect the personal health and safety of our workforce, recognizing that healthy

performance is delivered through healthy people, healthy processes and healthy

plant.

In the course of 2008, we defined health ‘group essentials’, which specify

requirements designed to prevent harm to the health of employees, contractors,

visitors and local communities. These were incorporated within the OMS

framework. Our health strategy and plan was also refreshed in 2008. Priorities

include reducing significant occupational exposure and infectious disease risks,

maintaining robust regulatory compliance in product health and safety and

addressing the issue of fatigue management raised by the panel by providing

training and awareness-raising.

354. The above referenced statements were materially false and misleading when made

because Defendants failed to disclose or indicate the following: (1) BP had inadequate safety

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procedures in place for its Gulf operations; (2) BP conducted its operations in the Gulf without

any legitimate oil spill response plan; (3) BP understated the risks of its Gulf operations while

overstating its ability to extract oil from the Gulf; and (4) BP lacked adequate internal safety and

risk management controls.

B. MARCH 10, 2009 INITIAL EXPLORATION PLAN

355. On March 10, 2009, BP filed an Initial Exploration Plan for Mississippi Canyon

252. The document was dated as being received by the MMS on February 23, 2009. Attached as

Exhibit B is a true and correct copy of the Initial Exploration Plan (“EP”), which details the

safety mechanisms that BP said it intended to implement.

356. This document was false and misleading as it failed to appropriately and accurately

detail the true risks and dangers of this operation and failed to disclose the fact that BP had

disregarded known risks relating to the operation of the Deepwater Horizon. In the

Environmental Impact Analysis section of the EP, BP repeatedly and falsely asserted that it was

“unlikely that an accidental surface or subsurface oil spill would occur from the proposed

activities.” BP falsely estimated a worst-case discharge scenario of 162,000 gallons of oil per day,

an amount it falsely assured the MMS that it was prepared to respond to. BP also claimed the

well’s distance from the nearest shoreline would preclude any significant adverse impacts from a

spill.

357. Additionally, before BP could begin operations at the Macondo site, federal

regulations required BP to submit its EP demonstrating that it had planned and prepared to

conduct its proposed activities in a manner that was safe, conformed to applicable regulations and

sound conservation practices, and would not cause undue or serious harm or damage to human or

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marine health, or the coastal environment. 30 C.F.R. §§ 250.201, 250.202. BP did not have such

a plan or a means of conducting their proposed activities.

358. Further, federal regulations required that the EP be accompanied by “oil and

hazardous substance spills information” and “environmental impact analysis information.” 30

C.F.R. §§ 250.212, 250.219, 250.227.

359. Among the information required to accompany the EP was a “blowout scenario,” described as follows:

A scenario for the potential blowout of the proposed well in your EP that you

expect will have the highest volume of liquid hydrocarbons. Include the estimated

flow rate, total volume, and maximum duration of the potential blowout. Also,

discuss the potential for the well to bridge over, the likelihood for surface

intervention to stop the blowout, the availability of a rig to drill a relief well, and

rig package constraints. Estimate the time it would take to drill a relief well. 30

C.F.R. § 250.213(g).

360. The oil and hazardous spills information accompanying the EP was also required to

include an oil spill response plan providing the calculated volume of BP’s worst-case discharge

scenario (See 30 C.F.R. § 254.26(a)), and a comparison of the appropriate worst-case discharge

scenario in [its] approved regional [Oil Spill Response Plan] with the worst-case discharge

scenario that could result from [its] proposed exploration activities; and a description of the

worst-case discharge scenario that could result from [its] proposed exploration activities ( See 30

C.F.R. §§ 254.26(b), (c), (d), and (e)); 30 C.F.R. § 250.219.

361. Federal regulations required BP to conduct all of its lease and unit activities

according to its approved EP, or suffer civil penalties or the forfeiture or cancellation of its lease.

30 C.F.R. § 250.280.

362. Concealed to the investing public was BP’s failure to have sufficient internal safety

and risk management processes to satisfy the above referenced regulated. In fact, BP Chief

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Operating Officer Doug Suttles acknowledged on May 10, 2010, that BP did not actually have a

response plan with “proven equipment and technology ” in place that could contain the

Deepwater Horizon Spill. Later, Defendant Hayward admitted that “ BP’s contingency plans were inadequate,” and that the company had been “making it up day to day .”

363. On May 12, 2010, Defendant McKay admitted in testimony to the House

Subcommittee on Oversight and Investigations, Committee on Energy and Commerce, that BP did

not have the capability and technology to respond to the Deepwater Horizon oil spill:

Mr. McKay: We are using the best technology at scale. This is the largest effort

that has ever been put together. So we believe we are using the best technology and

if we have any other ideas.

Mrs. Capps: But you never had any until it happened.

Mr. McKay: Well, we have been drilling with the Coast Guard for years.

Mrs. Capps: Did you develop technologies for dealing with this?

Mr. McKay: Not individual technologies for this, no.

Mrs. Capps: I rest my case.

364. Suttles’ acknowledgment, Hayward’s admission, and McKay’s testimony are further evidence of the falsity of BP’s EP plan.

C. MARCH 25 2009 HOWARD WEIL ENERGY CONFERENCE

365. On March 25, 2009 Defendant McKay spoke at the Howard Weil Energy

Conference. His remarks included the following:

“There’s no better example of what technology can do than the deep waters of the

Gulf of Mexico.”

“By the way, let me add that managing costs down does not mean BP will be

skimping when it comes to ensuring our operations remain safe, reliable and

compliant in the years ahead.”

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“Safety will continue to have first call on the company resources .”

366. These statements were false and misleading because Defendant McKay, in his

position as the CEO of BP America, knew about serious safety problems throughout BP’s Gulf of

Mexico operations. At the time that statement was made, there were systemic safety problems at

BP that were known to Defendant McKay and directives had been issued by senior BP managers

to put profit before safety.

367. Further, these statements were false and misleading because (1) BP did skimp on

operational safety and (2) safety not only was not the first call of the company’s resources, but

was recklessly underfunded.

D. NOVEMBER 19, 2009: STATEMENTS TO THE SENATE ENERGY AND

NATURAL RESOURCES COMMITTEE

368. On November 19, 2009, David Rainey, Vice President for Gulf of Mexico

Exploration for BP America, Inc. (a subsidiary of BP, plc) testified in front of and submitted

written statements to the United States Senate and Energy and Natural Resources Committee.

While Rainey acknowledged the general risks of drilling for oil in the Gulf of Mexico, he omitted

the fact that BP had not implemented adequate safety provisions, and therefore was highly

exposed to operational risks in the Gulf of Mexico.

369. Rainey’s written statements before the United States Senate Energy and Natural

Resources Committee included the following assertions:

BP’s Energy Portfolio

BP is not only the largest oil and gas producer in the United States, but also the

largest investor in energy of all sorts. In the last five years, we have invested

approximately $35 billion in the US to ensure Americans have the energy and fuels they need to live their lives. These include:

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Oil and natural gas: Offshore and onshore, from the Alaskan North Slope to the

deep waters of the US Gulf of Mexico, we are a leader in providing America’s

traditional energy needs.

370. In discussing safety specifically, Rainey stated:

While our intent is to prevent all accidental discharges, we conduct regular

emergency drills with local, state, and federal agencies. All of our production

facilities have contingency plans that identify the procedures, response equipment, and key personnel needed for responding to incidents.

371. Rainey’s statement further provided specific information regarding the

complexities of oil operations in the Gulf of Mexico, but failed to include material facts relating

to BP’s inadequate safety protocols:

US Deepwater Gulf of Mexico

Industry began to explore in the US Gulf of Mexico during the early 1930's. The

first discovery out of site of land was made by Kerr McGee in 1947. The MMS

classifies water depths greater than 1,000 feet as deepwater, and depths beyond

5,000 feet as ultra-deepwater. The first deepwater exploration well was drilled in

1975. The first ultra-deepwater exploration well was drilled in 1987. So, while it

took more than 40 years for industry to develop the technology to move from the

shoreline to 1,000 feet water depth, it took just 12 years to move from 1,000 feet to 5,000 feet. Wells in water depths up to 10,000 feet are now routine.

In the US Gulf of Mexico, shallow salt canopies underlie about 65 percent of the

seabed in the deepwater areas. These salt canopies make seismic imaging of the subsurface very challenging. . .

Early exploration in the US Deepwater Gulf of Mexico was focused on the 35

percent of the area which has no salt canopy. Without the salt, conventional

seismic imaging worked and fields were discovered as the advances in drilling

technology enabled industry to move rapidly into the deepwater. Much of the success in this period was enabled by widely-spaced two dimensional seismic data.

The technology challenge was about developing the systems to safely produce the

oil and gas in these water depths. Our colleagues in Shell were at the forefront of this phase of Gulf of Mexico development.

By the mid-1990's, the large fields had been found in the areas of the deepwater

free of shallow salt canopies. This led industry to turn its attention to the challenge

of exploring below the salt. To do this, we matured a technology known as seismic

depth imaging. This technology combines geological modeling and computer

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algorithms to restore the seismic wave paths to their correct positions-allowing the image to emerge.

By the late 1990's, depth imaging allowed the industry to begin to explore beneath

the salt. These early forays were restricted to areas where the top and base of the

salt were geometrically simple and the imaging problem was, from where we stand

today, relatively easy to solve. BP’s Mad Dog, Atlantis, and Thunder Horse

discoveries were delivered on the back of this technology in 1998 and 1999. Since

then, we have continued to refine the technology and have been able to announce a

steady stream of discoveries – most recently Kaskida in 2006, Isabela in 2007,

Kodiak and Freedom in 2008, and this year Mad Dog South and Tiber.

In 2003, BP began to address the problem of how we would explore under more

complex salt geometries. We predicted that continuing incremental improvements

to what was then considered conventional; depth imaging methods would soon

reach a point of diminishing returns. So we set out to create a step change by

developing a completely new seismic imaging technology.

Conventional depth imaging is a data processing technology which involves some

of the most sophisticated computer algorithms ever created. These algorithms

require powerful super-computers to run them. However, the underlying data were

acquired using a technology which had not changed significantly for 25 years. The

data were acquired using a single seismic vessel towing both the seismic source

and the receivers. Effectively, therefore, the data were acquired in two dimensions,

but at sufficiently close spacing to allow processing in three dimensions.

BP’s Wide Azimuth Towed Streamer (WATS) and Ocean Bottom Node

technologies involve truly three-dimensional seismic acquisition. They were

conceptualized, modeled, and piloted at scale in the US Deepwater Gulf of

Mexico. The WATS pilot was on our Mad Dog Field, and the Nodes pilot was on

Atlantis. At Mad Dog, the WATS data have contributed significantly to our ability

to continue to develop the field. The successful Mad Dog South appraisal well

which we announced in July of this year was enabled by these data. At Atlantis,

development of the North Flank of the field has been enabled through the

application of nodes technology and production has begun.

We have worked hard to drive our WATS technology into the market, and to refine

it to make it cost effective in the exploration arena. Today, much of the US

Deepwater Gulf of Mexico is covered by what we call XWATS - for Exploration

WATS - seismic surveys. The data from these surveys will allow us to continue to

move forward the limits of where we explore. As a result, we will be more

efficient, drill fewer wells, and have less impact on the environment as we become

better at predicting the presence of oil and gas in the subsurface.

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I have mentioned above how drilling technology advanced to allow us to drill in

deep and ultra-deep waters. As discoveries were made, production technology

followed. A variety of production systems have been developed to account for the different metocean, seabed, and reservoir conditions.

BP has been at the forefront of this recent phase of deepwater development.

Today, we operate eight major producing facilities in the US Deepwater Gulf of

Mexico. They range from the Pompano fixed platform, installed in 1994 in 1,300

feet of water, to the Atlantis semi-submersible platform, which started production in 2007 and sits in 7,100 feet of water. In between lie:

• The Marlin tension leg platform in 3,234 feet of water;

• The Holstein, Mad Dog, and Horn Mountain spar facilities in 4,344, 4500 and 5,422 feet of water, respectively; and

• The Thunder Horse and Nakika semi-submersible platforms in 6,050 feet and 6,340 feet of water, respectively;

Today Atlantis is the world’s deepest oil production facility, an honor previously held by both Horn Mountain and Nakika, when they began production.

In addition to enabling the industry to move into ever deeper waters, the drilling envelope has been extended by advances in directional and extended reach drilling.

The Nakika development is an example of where these technologies have been

combined with subsea production technology to bring six otherwise uneconomic

discoveries to production. These independent, medium-sized fields are tied back to

the centrally-located semi-submersible production host facility. Distance from the

central host varies from five to 26 miles. By combining directional and extended

reach drilling with subsea production systems, the environmental footprint has

been reduced by requiring only one surface facility, where previously six would

have been needed.

This month marks the tenth anniversary of our Marlin oil and gas hub. As the

Marlin Field has declined, a series of satellite fields have been tied back using

subsea production technology. In total, five satellite fields have been tied back,

with distance from the host ranging from two miles to 18 miles. This year, the

Dorado and King South satellite fields have been brought on line. These tiebacks

have returned the facility to a second peak of production – a very rare occurrence in

our industry. Again, the combination of directional and extended reach drilling

and subsea production technology has enabled multiple fields to be developed from

a single host platform. The environmental footprint has been reduced and the

useful life of the facility has been extended.

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In addition to directional and extended reach drilling, today’s drilling technology

allows us to drill to total depths which were unimaginable just 15 years ago. In the

mid-1990's, drilling was restricted to roughly 20,000 feet total depth. Today we

routinely drill to 30,000 feet and below. This means that we encounter ever greater

temperatures and pressures. Our Thunder Horse development currently defines the limits for what we call high-pressure/ high-temperature production technology.

That said, we are already moving beyond these limits. Our Kaskida discovery,

with reservoir depths ranging from 30,000 feet to 32,500 feet, has reservoir

pressures above 20,000 pounds per square inch. We are currently designing the systems which will be required to bring Kaskida to production.

Finally, we have recently announced our Tiber discovery – which was at the time

of rig release the deepest well in the history of the oil and gas industry at 35,055

feet. Tiber is an exciting discovery, and we are working hard to understand the

technologies which will be required to bring it to production.

Offshore Technologies Enabling Environmental Stewardship

Three key technologies which enable the safe and reliable production of offshore

oil and gas resources:

• Seismic imaging;

• Offshore drilling; and

• Offshore production systems.

Seismic imaging allows us to predict the presence of hydrocarbon reservoirs below

the sea bed. Drilling allows us to test for the presence of hydrocarbons in the

reservoirs. When hydrocarbons are present, the well bore connects the reservoir to

the surface, where production systems enable us to produce the hydrocarbons, and

deliver them safely to the refinery.

372. These representations were false and misleading. While explaining the successes

and profit potential of BP’s Gulf of Mexico Operations, Rainey omitted to disclose to investors

the risks and dangers of these operations. Most importantly, Rainey omitted the fact that BP had

failed to implement safety and risk management protocols, including those recommended to

senior management, and were dangerously exposed due to its drilling operations in the Gulf.

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E. 2009 ANNUAL REVIEW

373. On February 26, 2010, BP issued its 2009 Annual Review.

1. SVANBERG STATEMENTS

374. The Annual Review included a letter from Chairman of the Board Carl-Henric

Svanberg, stating: “Risk remains a key issue for every business, but at BP it is fundamental to

what we do. We operate at the frontiers of the energy industry, in an environment where attitude

to risk is key. The countries we work in, the technical and physical challenges we take on and the

investments we make – these all demand a sharp focus on how we manage risk. We must never

shrink from taking on difficult challenges, but the board will strive to set expectations of how risk

is managed and remain vigilant on oversight .”

375. These statements were not true. The reality was that BP was trying to manage risk

in the least costly way possible, and intentionally chose not to implement safety and risk

management protocols, including those recommended to senior management, which left the

Company dangerously exposed due to its drilling operations in the Gulf. If BP had truly been

willing to put safety first, it would have complied with safety standards and reduced safety risks

necessary to prevent a disaster like the Deepwater Horizon incident.

2. HAYWARD STATEMENTS

376. Defendant Hayward wrote, “Despite these difficult conditions, a revitalized BP

kept up its momentum and delivered strong operating and financial results while continuing to

focus on safe and reliable operations . Replacement cost profit for the year was $14 billion, with

a return on average capital employed of 11%.” Defendant Hayward went on to say, “2009 was an

outstanding year. Reported production grew by 4% and unit production costs were down by 12%.

We are now the largest producer in deepwater fields globally. In the Gulf of Mexico, we ramped

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up production at Thunder Horse to more than 300,000 barrels of oil equivalent per day.

Production started from Atlantis Phase 2, Dorado and King South. And in September we

announced the Tiber discovery, the deepest oil and gas discovery well ever drilled. These

successes make us the largest producer and leading resource holder in the deepwater Gulf of

Mexico .”

377. Defendant Hayward acknowledged that BP was operating on the frontiers of the

energy industry, but then reassured investors that risks were being handled appropriately, “BP has

always operated at the frontiers of the energy industry and our core strengths are more relevant

and valuable than ever. BP’s experience, skills, capability, technology and access to markets

enable resource holders to maximize returns over the long term. We continue to show our ability

to take on and manage risk, doing the difficult things that others either can’t do or choose not

to do. This is why we are able to form such strong relationships with governments and national

oil companies and why we continue to have a critical role to play in supplying the world with its

future energy needs.”

378. Defendant Hayward answered questions in the “Group chief executive’s review,”

which was disseminated to BP shareholders. When asked about the priorities he had set for BP,

Defendant Hayward responded “[o]ur priorities have remained absolutely consistent - safety,

people and performance . . . Achieving safe, reliable and compliant operations is our number

one priority and the foundation stone for good business. ”

379. These statements were false and misleading. While touting the strength of BP’s

Gulf of Mexico Operations, Hayward omitted the fact that BP’s safety protocols were woefully

inadequate and that BP had failed to implement safety and risk management protocols, including

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those recommended to senior management, which left the Company dangerously exposed due to

its drilling operations in the Gulf.

3. INGLIS STATEMENTS

380. Defendant Inglis, BP’s Chief Executive of Exploration and Production reiterated

BP’s claim that safety was BP’s primary focus:

Safety, both personal and process, remains our highest priority. 2009 brought

further improvement in personal safety with the segment’s reported recordable injury frequency improving from 0.43 in 2008 to 0.39 in 2009.

We also achieved improvements in the number of process safety-related incidents and a significant reduction in the number of spills.

During the year we continued our migration to the BP operating management

system (OMS), which provides an increased focus on process safety and

continuous improvement. By the end of 2009, 87% of our operating sites had

transitioned to OMS.

381. Defendant Inglis went on to reaffirm BP’s purported “Deepwater Expertise” stating

that, “BP is the leading operator in the deepwater Gulf of Mexico. We are the biggest producer,

the leading resource holder and have the largest exploration acreage position. Thunder Horse is

now the largest single producing field in the Gulf of Mexico. Fully operational and performing

beyond expectations, it has enabled us to grow our Gulf of Mexico production from 240,000

barrels of oil equivalent per day in 2007 to more than 400,000 barrels of oil equivalent per day in

2009.”

382. Defendant Inglis’ statements were misleading. Based on his position as Chief

Executive of E&P, Inglis knew about serious safety problems throughout BP’s Gulf of Mexico

operations and that BP was woefully ill prepared to safely drill in the deepwaters of the Gulf of

Mexico. Further, BP had failed to implement safety and risk management protocols, including

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those recommended to senior management, and was dangerously exposed due to its drilling

operations in the Gulf.

4. COMPANY STATEMENTS

383. In a section entitled “Sustaining momentum and growth,” BP acknowledged that

its safety protocols are material to investors by including a separate section on safety entitled

“Safety, reliability, compliance and continuous improvement.” That section states:

Safe, reliable and compliant operations remain the group’s first priority. A key

enabler for this is the BP operating management system (OMS), which provides a

common framework for all BP operations, designed to achieve consistency and

continuous improvement in safety and efficiency. Alongside mandatory practices

to address particular risks, OMS enables each site to focus on the most

important risks in its own operations and sets out procedures on how to

manage them in accordance with the group-wide framework.

384. This statement was false and misleading because BP had failed to implement its

OMS system in the Gulf operations in a sufficient manner. Moreover, according to CW2, BP’s

safety operations for its Gulf of Mexico offshore drilling operations lagged far behind BP’s competitors.

385. In the 2009 Annual Review, BP boasted that, due to its proactive safety measures,

it was reducing oil spills:

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386. Collectively, all these representations were false and misleading. BP was wholly

unprepared to manage risk, inadequately prepared to safely exploit the Gulf of Mexico resources

and lacked adequate internal and safety controls particularly with respect to its deepwater Gulf of

Mexico operations critical to BP’s financial results. As a result of the foregoing, the Company’s

financial statements were false and misleading. As is now clear, the truth was that safety was not

BP’s first priority. Rather, BP’s failure to implement and enforce appropriate safety measures

made a costly and deadly incident like the Deepwater Horizon a virtual inevitability.

F. MARCH 2, 2010 STRATEGY PRESENTATION

387. On March 2, 2010, BP created and published a Powerpoint presentation in London,

which highlighted its deepwater operations, especially in the Gulf of Mexico.

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388. BP’s presentation also highlighted the Gulf of Mexico as the site of a majority of

its “final investment decisions” for 2010 and 2011. These sites would be crucial for BP’s

continued economic growth.

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389. In the following additional slide, BP acknowledges that the largest area of growth

for BP from 2010-2015 is the Gulf of Mexico. In fact, the majority of new projects for BP during

the 2010-2015 time period were to be in the Gulf of Mexico.

390. BP’s presentation also highlighted its safety record. BP’s first point is that

“Safe and reliable operations remains #1"

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391. The presentation was false and misleading. While it is true that the Gulf of Mexico

was an important economic driver for BP, it is not true that BP was focused on safety. Instead, a

cascade of failures by BP made an incident like the Deepwater Horizon disaster virtually

inevitable. No lessons were learned from the past and no new commitment was made to safety,

and as confirmed by confidential witnesses, safety protocols that were promised were either

never implemented or enforced after 2009. Additionally, as detailed above and in the Abbott

whistleblower action BP concealed the fact that BP’s engineers predicted a catastrophic disaster of

this nature.

392. In February 2010, two months before the Deepwater Horizon disaster, 19 members

of Congress called on the agency that oversees offshore oil drilling to investigate Abbott’s

whistle-blower’s complaints about the Atlantis and BP’s commitment to safety in the Gulf.

Neither BP’s own independent investigation nor BP’s Ombudsman’s conclusions that BP’s lack

of completed engineering documents was violating its own policies as well as federal law were

disclosed to shareholders and was not revealed until after the Deepwater Horizon disaster.

393. In January 2010, Karen Westall, an attorney for BP, wrote a letter to Congress

saying the company is compliant with all federal requirements and the Atlantis has been operating

so safely that it received an MMS award. This statement was false and misleading. University of

California, Berkeley engineering professor Robert Bea describes running an oil rig with flawed

and missing documentation is like cooking a dinner without a complete recipe. According to

Prof. Bea, “This is symptomatic of a sick system. This kind of sloppiness is what leads to

disasters.”

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G. 2009 FORM 20-F ANNUAL REPORT

394. On March 5, 2010, BP issued its 2009 Form 20-F Annual Report. BP stated, in

relevant part:

The priorities that drove our success in 2009 – safety, people and performance

– remain the foundation of our agenda as we build on our momentum and work to further enhance our competitive position.

* * *

Good progress has been made on underpinning improved safety performance in

2009. Throughout the year, we continued to focus on training and enhancing

procedures across the organization. Significantly, 2009 was an important year in

the development of OMS. By the end of 2009, around 80% of our operating sites

were using the system, including all our operated refineries and petrochemical plants.

* * *

In Exploration and Production, safety, both personal and process, remains our highest priority.

* * *

Our priorities remain the same safety, people and performance , focusing on the

delivery of safe, reliable and efficient operations. In 2010, we aim to use the

momentum generated in 2009 to continue to improve operational, cost and capital

efficiency, while ensuring we maintain our priorities of safe, reliable and

efficient operations. ”

395. These representations were false and misleading. Defendants failed to disclose, according to a confidential former BP senior employee with Gulf of Mexico responsibilities ,

BP’s Gulf Operations had only begun to implement OMS in a pilot stage and lagged far behind its

Big Oil peers. Moreover, BP had terminated and/or restructured the Gulf Operations team who

was charged with implementing the OMS. As a result, BP’s representations concerning the

adequacy of its commitment to safety and the implementation thereof, at least as it related to the

Gulf of Mexico, were false and misleading.

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396. In discussing the Gulf of Mexico, BP specifically stated: “BP applies high

resolution seismic data for the identification of reservoir extent and fluid contacts only where

there is an overwhelming track record of success in its local application. In certain deepwater

fields, such as fields in the Gulf of Mexico, BP has booked proved reserves before production

flow tests are conducted, in part because of the significant safety, cost and environmental

implications of conducting these tests.”

397. BP’s operations in the United States take place in three major areas: the deepwater

Gulf of Mexico, the lower 48 states and Alaska. BP acknowledges the deepwater Gulf of Mexico

is easily its largest area of growth in the United States. The report specifically stated:

Deepwater Gulf of Mexico

Deepwater Gulf of Mexico is our largest area of growth in the US. In addition, we

are the largest producer and acreage holder in the region.

Significant events were:

• In May 2009, BP announced it had begun production from the Dorado (BP

75% and operator) and King South (BP 100%) projects. Both projects are

subsea tiebacks to the existing BP Marlin Tension Leg Platform (TLP)

infrastructure. Dorado comprises three new subsea wells located about two

miles from the Marlin TLP. King South comprises a single subsea well

located 18 miles from the Marlin TLP. Both projects leverage existing

subsea and topsides infrastructure and the latest subsea and drilling

technology to enable the efficient development of the fields. Dorado

utilizes dual completion technology enabling production from five Miocene zones and King South is produced through the existing King subsea pump.

• In June 2009, the Atlantis Phase 2 (BP 56%) project achieved first oil ahead of schedule, signaling the official start-up.

• In July 2009, BP announced the drilling of a successful appraisal well in a

previously untested southern segment of the Mad Dog field (BP 60.5% and

operator). The 826-5 well is located in the Green Canyon block 826,

approximately 100 miles south of Grand Isle, Louisiana, in about 5,100 feet

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of water. The results from this well continue the successful phased development of the Mad Dog field and build upon the success from 2008.

• In September 2009, BP announced the Tiber discovery in the deepwater

Gulf of Mexico (BP 62% and operator). The discovery well, located in

Keathley Canyon block 102, approximately 250 miles south-east of

Houston, is in 4,132 feet of water. It was drilled to a total depth of

approximately 35,055 feet making it the deepest oil and gas discovery well ever drilled. The well found oil in multiple Lower Tertiary reservoirs.

Appraisal will be required to determine the size and commerciality of the discovery.

398. Again, these representations were false and misleading. While touting the Gulf of

Mexico as one of the critical areas of growth, BP omitted the fact that its operations in the Gulf of

Mexico were unsafe. The truth, as revealed by the cascade of systematic failures that resulted in

the Deepwater Horizon disaster, shows that the above-mentioned statements were not true. BP

did not have in place a mechanism for conducting operations in a safe and reliable manner, which

made an incident of this nature virtually inevitable. These facts were not disclosed.

399. BP’s 2009 Form 20-F also included the following representations:

Safety

Safety, people and performance are BP’s top priorities. We constantly seek to

improve our safety performance through the procedures, processes and training

programmes that we implement in pursuit of our goal of ‘no accidents, no harm to

people and no damage to the environment.’

In 2009, a third-party-operated helicopter carrying contractors from BP’s Miller

platform crashed in the resulting in the tragic loss of 16 lives. In

addition, BP sustained two fatalities within our own operations, one, when a rig

worker was lost overboard during drilling operations in Azerbaijan and a second,

in a crush injury on a well pad in Alaska.

We deeply regret the loss of these lives.

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Safety and operational performance

In 2009, BP’s safety record continued to improve, as indicated by measures of

personal safety including reported recordable injury frequency (RIF) and days away

from work case frequency (DAFWC).

Our overall RIF of 0.34 was significantly lower than the rate of 0.43 in 2008 and

0.48 in 2007. Our DAFWCF was 0.069, an improvement on the level of 0.080 in

2008.

In 2009, eight work-related major incidents were reported, compared with 21 in

2008. Major incidents include incidents resulting in fatalities, significant property

damage or significant environmental impacts. All fatalities and other major

incidents and many that have the potential to become major incidents, are

discussed by the group operations risk committee (GORC), chaired by the group

chief executive. Our mandatory internal requirement to undertake incident

investigations seeks to ensure that we learn as much as possible from each incident

and take action to prevent re-occurrence.

There were 234 oil spills of one barrel or more reported in 2009, a significant

reduction on the 335 spills that occurred in 2008. The reported volume of oil

spilled in 2009 was approximately 1,191 million litres, a reduction of 65%

compared with 2008.

This performance follows several years of intense focus on training and procedures

across BP. BP’s operating management system (OMS), which provides a single

operating framework for all BP operations, is a key part of continuing to drive a

rigorous approach to safe operations. 2009 marked an important year in the

continuing implementation of OMS.

Safe, reliable and responsible operations

Having been introduced at eight operating sites in 2008, implementation of the

OMS gathered pace in 2009. The system was up and running at 70 operations

across the business by the end of the year, including all our operated refineries and

petrochemicals plants. This represents around 80% of the operations for which

OMS implementation is planned, with the remainder scheduled to be live by the

end of 2010.

Taking a systematic approach is integral to improving safety and operating

performance in every BP site. Our OMS covers all areas from process safety, to

personal health, to environmental performance. By applying consistent principles

and processes across the BP group’s operations, the system provides for an

integrated and consistent way of working. These principles and processes are

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designed to simplify the organization, improve productivity, enable consistent

execution and focus BP on performance.

Capability development

Having built a safety and operations learning framework to enhance the capability

of our staff to deliver safe, reliable, responsible and efficient operations, we

defined target populations for these programmes more accurately in 2009.

More than 2,700 front-line operational leaders across our global operations have

started one or more of the modules within the Operating Essentials programme

which seeks to embed the BP way of operating as defined by OMS. Our

Operations Academy (OA), a partnership with the Massachusetts Institute of

Technology (MIT), is also now well established. Seven cadres of senior operations

staff have already attended this academy and three of these have graduated: all are applying their learning and having a deep influence in the operations community.

We also have an Executive Operations Programme which has continued to support

the executive team and senior business leaders in the development of their unique

operations capability requirements.

Process safety management

We continued to implement the 2007 recommendations made by the BP US

Refineries Independent Safety Review Panel (Panel), which following the incident

at Texas City in 2005, reviewed process safety management at our US refineries

and our safety management culture.

In accordance with those recommendations, we appointed an Independent Expert

for a five-year term to monitor their implementation. We again co-operated closely

with the Independent Expert in 2009, providing him access to our sites, personnel

and documentation and routinely supplying him with progress reports. In the

Independent Expert’s second annual report, published in 2009, he acknowledged

BP’s sustained focus on its safety and operations agenda and the priority given by executive management and the board to safe, reliable and responsible operations.

The report identified areas for continued focus and highlighted the progress made

in several areas, including the development of capability programmes, OMS

implementation, safety and operations auditing, and the improvement of metrics to

monitor process safety performance. During the course of 2009, we also provided

regular progress updates to the Safety, Ethics and Environment Assurance

Committee of the board.

See Legal proceedings on pages 95-96 in respect of ongoing Texas City refinery

matters.

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By the end of 2009 our safety and operations audit team had audited a total of 94

BP businesses, including all major operating sites, within a three-year period. The

audits, which in 2009 included pilot audits for analysis against the requirements of

the OMS, have provided a rigorous process for assessing our businesses against

BP’s relevant standards and requirements.

We also participated in industry-wide forums on process safety. We chaired the

API/ANSI multi-stakeholder group developing a standard for public reporting of

leading and lagging process safety indicators. Through this and other bodies, we

shared our learning with other organizations within and outside the oil and gas

industry.

‘Six-point plan’

Our efforts on process safety included taking action to close out our six-point plan for

process safety, which was launched in 2006 to address immediate priorities for improving

process safety and minimizing risk at our operations worldwide. We have either

completed the required actions or integrated the few continuing requirements within the

OMS, for tracking to completion. We established a clear approach for future monitoring

of these within the internal HSE & Operations Integrity Report. This report, which is the

key source of management information relating to safety and operations in BP, is prepared

quarterly for the GORC.

400. These statements were false and misleading or omitted material facts necessary to

make other statements not misleading. While highlighting the rewards of its Gulf of Mexico

operations, BP actively hid the risks and dangers, the failure to implement appropriate safety

measures, and its abdication of appropriate risk management.

H. MARCH 22, 2010 HOWARD WEIL CONFERENCE

401. On March 22, 2010, less than a month before the Deepwater disaster,

Defendant Inglis spoke at the Howard Weil Conference in New Orleans. His prepared remarks

include the following:

We are currently planning to make final investment decisions for 24 new major

projects in the next two years. Each project has been high-graded though our

project selection and progression process. They are concentrated in the Gulf of

Mexico, the North Sea, Azerbaijan and Angola – high margin production areas that improve the portfolio and enable profitable growth.

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Safety and operational integrity underpins everything we do , and we are now

in the final phase of rolling out our operating management system that provides

a single, consistent framework for our operations, covering all areas from personal

and process safety to environmental performance. And I am pleased to say that in

2009 we saw continuing improvement in all aspects.

402. While it was true that BP was concentrating in particular areas, including the Gulf

of Mexico, as described above, according to a former BP senior employee with Gulf Operations

responsibilities, it was not true that BP was in the final stages of rolling out their operations

management system, at least with respect to the Gulf of Mexico, nor was it true that safety

underpinned everything BP did. In fact, in the Gulf of Mexico, BP had only begun to implement

its OMS in a pilot stage when it terminated and/or displaced the key employees responsible for its

implementation. As such, the statements above were false and misleading or omitted material

facts necessary to make other statements not misleading.

403. While touting the huge growth potential of the Gulf of Mexico, Defendant

Hayward, on behalf of BP, concealed the fact that there were rampant safety problems in the Gulf

of Mexico, which were known to BP. BP’s representation that it could deliver huge profits in a

safe and reliable manner, while concealing known dangers in that area, was intended to and did

induce investors such as the Plaintiffs to invest in BP securities.

404. Moreover, approximately four to five weeks prior to the Deepwater Horizon

incident, chunks of the annular on the blowout preventer had broken off and floated to the surface.

BP also knew in the weeks and months prior to the incident that the battery on the blowout

preventer was weak and one of the control pods on the blowout preventer was broken. According

to engineering expert Robert Bea, a malfunctioning control pod is “like losing one of your legs.”

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405. Therefore, BP’s knowledge of these facts rendered its statements false and

misleading.

I. CODE OF CONDUCT

406. BP published in its public filings its “Code of Conduct.” BP’s Code of Conduct

states, in pertinent part:

BP is committed to providing all BP employees – and those of other companies

working on our premises – with a safe and secure work environment where no one

is subject to unnecessary risk.

We recognize that safe operations depend not only on technically sound plant and

equipment, but also on competent people and an active HSSE culture. No activity

is so important that it cannot be done safely.

Simply obeying safety rules is not enough. BP’s commitment to safety means each

of us needs to be alert to safety risks as we go about our jobs. Basic rules you must follow.

Always

• Comply with the requirements of the HSSE management system at

your work location – including the use of relevant standards, instructions and processes – and with the golden rules of safety.

• Stop any work that becomes unsafe.

• Only undertake work for which you are trained, competent,

medically fit and sufficiently rested and alert to carry out.

• Make sure you know what to do if an emergency occurs at your place of work.

• Help ensure that those who work with you – employees, contractors

and other third parties – act consistently with BP’s HSSE commitments.

• Promptly report to local BP management any accident, injury,

illness, unsafe or unhealthy condition, incident, spill or release of

material to the environment, so that steps can be taken to correct,

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prevent or control those conditions immediately. Never assume that someone else will report a risk or concern.

• Seek advice and help if: – You are ever unclear about your HSSE

obligations. – You have a concern about a potential or actual breach of HSSE law or a BP HSSE requirement.

Never

• Undertake work when your performance is impaired by alcohol or other drugs, legal or illegal, prescribed or otherwise.

• Possess, use or transfer illegal drugs or other substances on company premises.

• Use threats, intimidation or other violence at work, or bring

weapons – including those carried for sporting purposes – onto

company premises

Wherever we operate, we will strive to minimize any damage to the environment

arising from our activities.

407. The statements referenced above were false and misleading because among other

reasons, (1) BP was unprepared for a catastrophic disaster in the Gulf; (2) BP lacked sufficient

internal controls and risk management to insure environmental stewardship; and (3) its drilling processes were done safely to avoid environmental disasters.

J. 2009 SUSTAINABILITY REVIEW

408. On April 15, 2010, BP issued its online 2009 Sustainability Review. BP stated, in

relevant part:

• Our Values

BP is progressive, responsible, innovative and performance driven.

• Responsible

We are committed to the safety and development of our people and the

communities and societies in which we operate. We aim for no accidents, no harm

to people and no damage to the environment.

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• Performance Driven

We deliver on our promises through continuous improvement and safe, reliable

operations.

These values guide us in the conduct of our business. In all our business we expect

our people to meet high ethical standards and to act in accordance with our code of

conduct.

• Group Chief Executive's Review

Question: What progress has BP made on safety during 2009?

Answer : Safety is fundamental to our success as a company and 2009 was

important because of the progress we made in implementing our operating

management system (OMS). The OMS contains rigorous and tested processes

for reducing risks and driving continuous improvement. I see it as the foundation

for a safe, responsible and high-performing BP. Having been initially introduced

at eight sites in 2008, the OMS rollout extended to 70 sites by the end of 2009,

including all our operated refineries and petrochemicals plants. This means

implementation is 80% complete. I’m proud that our injury rates have come down around 75% in the past decade.

• How We Operate

Risk Management

Group risks – the significant risks that could affect the achievement of our

objectives – have responses designed to deal with them in the most appropriate

way. These include our operating management system for delivery of safe,

responsible and reliable operating activity, and group standards, which set out

processes for other major areas such as investment decisions or fraud and misconduct reporting.

The group chief executive’s (GCE) senior team – known as the executive team – is

supported by sub-committees to be responsible for and monitor specific group

risks. These include the group operations risk committee, the group financial risk

committee and the group people committee. The GCE also conducts regular

performance reviews with the business segments and key functions to monitor

performance and the management of risk and to intervene if necessary.

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People Management

People management is based on performance objectives through which individuals

are accountable for delivering specific elements of the group plan within agreed boundaries.

Clear lines of communication exist for the provision of relevant information to

help ensure all people are clear on what is expected of them and are up to do their

job. Employees can raise concerns with line managers, human resources, legal or compliance teams or through OpenTalk, and independent confidential helpline.

• Diverse and affordable energy

Working at the fronteirs

BP works at the geographical and technological frontiers of the energy industry. We have

decades of experience of using cutting-edge skills and technology to undertake complex

oil and gas projects in many of the world’s most technically challenging and hostile

environments, such as the Arctic and ultra deepwater. Recent innovations include new

technologies to increase recovery from mature oil fields and advanced seismic techniques

that create highly detailed images of reservoir formations miles below the surface. One of

our recent finds, the Tiber field in the Gulf of Mexico , was made by drilling a well 31,000

feet into the earth in water 4,000 feet deep.

Deepwater exploration

BP has substantial deepwater assets around the world, including the Gulf of Mexico ,

Angola and Brazil (pending closure).

• Safe And Responsible Energy

Safety, People and Performance

Safety, people and performance are BP's top priorities.

Our commitment to safe and reliable operations starts with the group chief

executive and leadership: a commitment that filters down through the organization and is regularly communicated to all staff.

All fatalities, other major incidents and many that had the potential to become

major incidents are discussed by the group operations risk committee, chaired by

the group chief executive. We undertake incident investigations with the aim of learning as much as possible and taking action to prevent recurrence.

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We constantly seek to improve our personal, process and transportation safety

performance through the use of established processes, ongoing capability development and knowledge sharing with other organizations.

Personal Safety and Health

Creating a safe and healthy working environment is essential for our success.

• Operating Skills and Knowledge

Our safety and operations learning framework enhances the capability of our staff at all levels to deliver safe, reliable, responsible and efficient operations.

Our Operations Academy helps senior operations leaders learn to manage

operations in a way that eliminates defects and drives continuous improvement, not

only taking actions themselves, but empowering front-line employees to be agents

of change. Executive Operations sessions support the executive team and senior business leaders in the development of operations capability specific to their role.

“I am extremely proud of BP's 2009 safety performance – it reflects a sustained effort across all our operations over many years.” – Tony Hayward

• Managing Our Impact

We aim to minimize our environmental impact by taking a systematic and

disciplined approach to operations, using sophisticated risk assessment techniques that directly inform our business plans.

• Our People

People are fundamental to our progress in BP. Our performance and our safety

record depend on our employees' skill and commitment. We therefore organize,

manage and reward employees in ways designed to achieve the best possible performance, today and for the long term.

• Compliance and Ethics

BP’s reputation, and therefore its future, depends on every BP employee,

everywhere, every day, taking personal responsibility for ethical and compliant

business conduct. It is a fundamental BP commitment to comply with all

applicable legal requirements and adhere to high ethical standards.

409. The above referenced statements were materially false and misleading when made

because Defendants failed to disclose the following facts of which they were aware or were

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reckless in not being aware of: (1) BP had failed to implement adequate safety procedures; (2) BP

conducted its operations in the Gulf without any legitimate oil spill response plan; (3) BP

understated its exposure from drilling operations in the Gulf; (4) BP lacked adequate internal and

safety controls; (5) BP’s Gulf Operations had failed to implement BP’s OMS in any robust

manner and the individuals responsible for its implementation had been terminated or moved

outside of Gulf Operations; and (6) BP’s highest officers had knowledge that its Gulf Operations

had caused oil spills in 2008 and two of its rigs (the Deepwater Horizon and the Atlantis) had

reported operational safety problems, which would have been reported to GORC and, as such, put

Defendants on notice of the inadequacy of their safety processes in the Gulf of Mexico.

K. 2009 SUSTAINABILITY REPORT

410. On April 15, 2010, BP issued its 2009 Sustainability Report. BP stated, in relevant

part:

• A Systematic Approach

BP constantly seeks to improve its safety performance through the

procedures, processes and training programmes that we implement in pursuit

of our goal of no accidents, no harm to people and no damage to the

environment.

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.

Safety performance is a regular focus of the group chief executive's formal

communications such as BP's quarterly results and in less formal communications

such as his regular townhalls with BP staff. BP’s leadership has continued to

reinforce the importance of safety when undertaking regular site visits to BP facilities around the world and from all parts of the business.

“I am extremely proud of BP's 2009 safety performance – it reflects a sustained effort across all our operations over many years.” – Tony Hayward

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Promoting Safe Operations

We are carrying forward our efforts on process safety, which is an integral part of

our operating management system (OMS) and ingrained within our capability

programmes. As participants in a second round of operations leadership sessions at

MIT this year, the group chief executive and his executive team were instrumental

in establishing the concept of continuous improvement to help drive systematic

safety and reliability in our operations. Continuous improvement is a means of

empowering our operations managers and supervisors, who are closest to our

operational problems, to develop the necessary solutions.

Taking Our Safety Pulse

We believe our focus on changing BP's safety culture over the last few years is

yielding results . To measure how effectively we have embedded our safety

message in the organization, we assess employee views on various dimensions of

safety within the ‘Pulse plus” survey.

Responses suggest continued progress in integrating safety into our business, with

98% of those surveyed saying they know how to do their job safely. Positive

responses have also been received to questions regarding confidence in line

management making safety a priority (82% compared with 80% in 2008), being

open to suggestions for improving safety performance (87%, from 81% in 2008) and being receptive to honest information about safety (98% versus 97% in 2008).

In a new question on whether employees have seen evidence that BP is making

progress in improving the safety and reliability of its operations, 76% gave a

positive response.

• Striving for Safe Operations

BP continues to implement its operating management system (OMS), a cornerstone

of achieving safe, reliable and responsible operations at every BP operation.

Taking a systematic approach is integral to improving safety and operating

performance in BP operated sites. Our operating management system covers all

areas from process safety, to personal health, to environmental performance.

A Unifying Way of Operating

We have successfully introduced OMS at every refinery worldwide in advance of

the internal expectations. Hugh Parsons, Vice President with responsibility for

management processes in refining states that "the OMS framework has given us a

common path, applicable across different sites and assets worldwide. It has

provided a unifying way of operating. This is true not only for refining but across

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the whole of BP, where we have a much clearer definition of what ‘good

operations' looks and feels like, regardless of the business context."

• Safety Performance

BP has well-developed systems, processes and metrics for reporting safety

performance in support of internal performance management and to enable

learning and public reporting .

Our Approach to Safety Reporting

Reported health and safety data is collected for all operations where BP has health

and safety management control. Data is not externally reported from units where

BP does not have operational control, such as part-owned entities and joint

ventures operated by others, including TNK-BP. If an incident occurs, it is

recorded locally by employees, contractors and management using our internal web-based data management system .

All fatalities, other major incidents and many that had the potential to

become major incidents are discussed by the group operations risk committee ,

chaired by the group chief executive . We undertake incident investigations with

the aim of learning as much as possible and taking action to prevent recurrence.

Detailed data is collected on all work-related incidents resulting in fatalities

involving employees, contractors or third parties. Incidents which cause injury or

illness to members of the workforce (employees and contractors) are recorded and

their severity categorized using definitions and guidance provided by the US

Occupational Health and Safety Administration (OSHA).

• Safety and Operations Audits

BP's safety and operations audits assess compliance with standards and the

effectiveness of operational risk management.

The audits provide a rigorous check on safety and operations programmes.

We categorize audit findings against pre-defined criteria agreed between the audit

team and the audited entity's leadership and, for identified issues, set remedial

corrective actions, including completion due dates. For the audit report findings,

the group audit team tracks actions, verifying that they have been completed and

using subject matter experts where necessary. Progress is reported quarterly, at

which time issues, such as overdue action closures, are highlighted to executive

management in the executive-level group operations risk committee. To date,

more than 10,000 actions have been generated, of which more than 70% have been verified as closed.

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We’ve developed the audit process and protocols to enable auditing against the

requirements in our operating management system (OMS). We’ve also developed

and delivered a training programme to prepare auditors for auditing against OMS

and its associated practices and are completing the modification of all relevant information management systems.

Our safety and operations audit team, which is independent from the businesses

they review, has, as planned, identified key sites and audited their performance. In

the three-year period to the end of 2009, the team completed a full cycle of audits,

covering 94 BP operations. This work, which in 2009 included pilot audits for

analysis against the requirements of the OMS, has provided a rigorous process for

assessing our businesses against BP's relevant standards and requirements.

• Process Safety

BP is fully committed to becoming a recognized industry leader in process

safety management and continues to work to achieve this.

Process safety involves applying good design principles, engineering and operating

and maintenance practices to manage our operations safely.

Process Safety Reporting

To track our progress in process safety management, we measure lagging

indicators which record events that have already occurred, such as oil spills, and

leading indicators that focus on the strength of our controls to prevent undesired

incidents, such as inspections and tests of safety-critical equipment .

• Oil Spills

BP recognizes the risk posed to the environment from spills and takes a range

of measures to prevent any loss of hydrocarbons .

Our approach

Our strategy to address spills has three components:

Prevention: we seek to assure the integrity of vessels and pipelines used to

transport oil and other hydrocarbons.

Preparation: we seek to ensure an infrastructure is in place to deal effectively

with spills and their impacts. Our operating facilities have the capacity and

resources to respond to spill incidents and we participate in industry and

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international forums to coordinate contingency planning and emergency

response.

Performance: we record incidents, learn lessons and aim to reduce the number of

losses from primary containment.

Incidents are recorded locally by our staff and contractors using our web-

based incident tracking system. BP’s executive management is notified

quarterly about numbers and volumes of spills and spills of more than 100

barrels.

411. The above referenced statements were materially false and misleading when made

because Defendants failed to disclose the following facts of which they were aware or were

reckless in not being aware of: (1) BP had failed to implement adequate safety procedures; (2) BP

conducted its operations in the Gulf without any legitimate oil spill response plan; (3) BP

understated its exposure from drilling operations in the Gulf; (4) BP lacked adequate internal and

safety controls; (5) BP’s Gulf Operations had failed to implement BP’s OMS in any robust

manner and the individuals responsible for its implementation had been terminated or moved

outside of Gulf Operations; and (6) BP’s highest officers had knowledge that its Gulf Operations

had caused oil spills in 2008 and two of its rigs (the Deepwater Horizon and the Atlantis) had

reported operational safety problems, which would have been reported to GORC and, as such, put

Defendants on notice of the inadequacy of their safety processes in the Gulf of Mexico.

412. Moreover, Defendant Hayward chaired GORC and Defendant Inglis was a

member. As detailed above, the BP Gulf Rig Atlantis caused an oil spill in 2008 and raised

concerns of safety critical equipment on the Atlantis that according to BP’s statements would have

been received and reviewed by Hayward and Inglis. Additionally, as detailed above safety critical

equipment on the Horizon was tested and inspected prior to the spill and the results of these tests

and inspections according to BP’s own statements, would have been communicated to GORC.

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413. Despite having knowledge of safety process problems in the Gulf of Mexico,

including knowledge of oil spills, safety-critical equipment failures on two Gulf Rigs, and safety

process concerns in the Gulf during the Subclass Period, BP issued false and misleading

statements related to the safety process strength of BP’s Gulf Operations. Defendants, including

but not limited to Hayward and Inglis, had knowledge of BP’s Gulf of Mexico safety and

operational problems, yet touted the huge growth potential of the Gulf of Mexico, concealing the

massive safety problems that existed in the Gulf of Mexico, which were known to BP.

VII.

LOSS CAUSATION

414. During the Subclass Period, as detailed herein, the Defendants engaged in a

scheme to deceive the market and in a course of conduct that artificially inflated the value of BP

securities, including ADRs, and operated as a fraud or deceit on members of the Subclass by

misrepresenting the Company’s risk management and safety processes.

415. As a result of the Individual Defendants’ fraudulent conduct as alleged herein, the price of BP securities, including ADRs, was artificially inflated throughout the Subclass Period.

When Lead Plaintiffs and other members of the Subclass purchased their securities, the true value

of such securities was substantially lower than the prices actually paid. When the truth about BP’s

safety operations and risk management was revealed to the market, the price of BP securities

declined in response, as the artificial inflation caused by BP’s material omissions and false and

misleading statements were removed from the price of BP’s securities, thereby causing substantial

damage to Plaintiffs and other members of the Subclass.

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416. Defendants’ false and misleading statements set forth above were widely

disseminated to the securities markets, investment analysts, and to the investing public. Those

statements caused and maintained the artificial inflation of the price of BP’s securities, which

consequently traded at prices in excess of their true value. As a result of the Deepwater Horizon

spill, which revealed the truth about BP’s disregard of risk management and safety practices, BP’s

shares have lost a substantial percentage of their value. For example, on April 20, 2010, the price

of one BP ADR was approximately $59. Within a week, the share had dropped to approximately

$50. The price continued to plunge in response to the further materialization of the true state of

Defendants’ Gulf of Mexico safety operations and risk management.

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417. It was entirely foreseeable that concealing the true state of BP’s safety and risk management procedures in the Gulf of Mexico would artificially inflate the price of BP securities.

It was similarly foreseeable that the ultimate revelation of the true condition of BP’s safety and

risk management procedures operation in the Gulf of Mexico would cause the price of BP securities to drop significantly as the inflation caused by their misstatements was corrected.

Accordingly, the conduct of the Defendants, as alleged herein, proximately caused foreseeable

damages to Plaintiffs and members of the Subclass.

418. Plaintiffs purchased their shares of BP in reliance on BP’s statements that they had

implemented appropriate risk management and safety mechanisms to reduce the risk that

catastrophic and expensive disasters such as the Deepwater Horizon would occur, and if they did

occur, that BP’s exposure would be reduced because of such measures. It is now apparent,

however, that such mechanisms were not implemented. Therefore, Defendants’ wrongful conduct directly and proximately caused the economic loss suffered by Plaintiffs.

419. As explained herein, these false statements directly or proximately caused, or

were a substantial contributing cause of, the damages and economic loss suffered by Lead

Plaintiffs and other members of the Subclass, and maintained the artificial inflation in the prices

of BP securities throughout the Subclass Period and until the truth was revealed to the market.

VIII.

SCIENTER ALLEGATIONS

420. Appropriate safety and risk management procedures are at the core of BP’s drilling

operations, particularly in the Gulf. Accordingly, the implementation of appropriate safety and

risk management processes was a matter driven from the top of the organization. BP’s CEO and

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Board of Directors were involved in both the day-to-day and strategic decisions relating to BP’s

procedures and protocols. Nevertheless, as detailed herein, Defendants took affirmative steps

which inhibited the ability of BP to implement appropriate safety processes, including but not

limited to, mandating budget cuts at the expense of safety processes, disregarding warnings from

BP employees and risk managers, and terminating or removing key Gulf Operators charged with

implementing safety processes in the Gulf.

421. Moreover, BP’s corporate structure mandated that BP’s officers and directors were

on notice of and has access to all material facts relating to the safety processes of BP’s Gulf

operations. Accordingly, Defendants knew or recklessly disregarded facts concerning the

inadequate safety and risk management practices in BP’s Gulf operations. For example, BP’s

senior management openly boasted of their personal commitment to such practices, and executive

officer and Board oversight of safety processes were described as a fundamental part of BP’s

corporate restructuring, particularly after Hayward became CEO and BP implemented the Baker

Report’s guidance on executive and Board oversight of corporate safety processes.

422. However, Defendants knowingly or recklessly disregarded these facts concerning

the safety of their Gulf of Mexico drilling operations. Additionally, confidential witnesses and

other investigations provide facts, described above, which further contribute to a strong inference

of scienter.

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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

1. SAFETY, ETHICS, AND ENVIRONMENT ASSURANCE COMMITTEE

423. BP’s Board has five committees, including an Audit Committee, Remuneration

Committee, Chairman’s Committee, Nomination Committee, and a Safety, Ethics, and

Environment Assurance Committee (“SEEAC”) committee. SEEAC was formerly known as the

Ethics and Environment Assurance Committee, but in 2005, following the Texas City disaster,

added “Safety” as a focus. As stated above, Defendant Castell is the current Committee chairman.

424. SEEAC is composed of independent non-executive directors and is charged with the oversight of health, safety, and environmental (HSE) matters.

425. According to BP’s Board Governance principles, SEEAC is charged with:

• Monitoring and obtaining assurance that the Group Chief Executive’s (“GCE’s”)

internal control system for operations is designed and implemented effectively in

support of his observance of the relevant Executive Limitations;

• Monitoring and obtaining assurance that the management or mitigation of

significant BP risks of a non-financial nature is appropriately addressed by the

GCE;

• Receiving and reviewing regular reports from the GCE or his delegate, the Group

Internal Auditor and the Group Compliance and Ethics Officer regarding the

GCE’s adherence to the relevant Executive Limitations and his management in

responding to risk;

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• Reviewing material to be placed before shareholders which addresses

environmental, safety and ethical performance and make recommendations to the

Board about their adoption and publication;

• Reviewing reports on the Group’s compliance with its Code of Conduct and on the

employee concerns programme (OpenTalk) as it relates to non-financial issues; and

• Recommending to the Board any changes or further delineation of the Executive

Limitations in relation to non-financial matters

426. Defendants Castell, Anderson, Burgmans, Carroll and Davis are all directors of BP

and members of BP’s Safety, Ethics and Environment Assurance Committee. These directors are

responsible for making both day-to-day and strategic decisions regarding safety for BP and for

monitoring that those safety mechanisms were implemented . As a result, these Defendants had

knowledge of and access to, or recklessly disregarded, BP’s safety problems in the Gulf of

Mexico, which were concealed from Plaintiffs.

2. GROUP OPERATIONS RISK COMMITTEE

427. In 2007, BP created a GORC, which consisted of BP executives. During the

Subclass Period, GORC was chaired by BP’s then-CEO and Board member Hayward. Defendant

Inglis was also a GORC member. GORC was expressly charged with reviewing and analyzing

safety incidents in BP’s operations and regularly reporting SEEAC. GORC was charged with

providing process safety oversight by conducting regular reviews of incidents , detailed

examinations of safety-related activities , and identifying areas for additional focus .

428. GORC consisted of BP executives and was at all relevant times chaired by BP’s

then-CEO and Board member Hayward, and it included Defendant Inglis. GORC was expressly

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charged with analyzing safety incidents in BP’s operations. According to BP, GORC would have

regularly been provided analyses and data, including compliance violations, fines and penalties,

and government reportable incidents. Thus, members of GORC had access to facts concerning the true nature of the safety and risk of BP’s Gulf of Mexico operations.

429. The flow chart below (from BP’s 2009 Annual Report) shows how all the pieces fit

together to support BP’s goal of “no accidents, no harm to people, and no damage to the

environment.”

3. BP’S INTERNAL REPORTING STRUCTURES MANDATED THAT GULF

SAFETY PROBLEMS REACHED THE EXECUTIVE AND BOARD

LEVEL

430. According to BP’s 2009 Form 20-F Annual Report, BP’s safety and operations

agenda was given the highest priority by executive management and the Board to ensure the

Company operated safely, reliably and responsibly. BP purportedly implemented, among other

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means of reporting, safety and operations auditing and metrics to monitor process safety

performance and regular progress updates to SEEAC . BP further claimed that it possessed

well-developed systems, processes and metrics for reporting safety performance in support of

internal performance management and to enable learning and public reporting.

431. Additionally, all fatalities, other major incidents and incidents that had the

potential to become major incidents were discussed by the GORC, chaired by the GCE for the

purpose of undertaking incident investigations with the aim of learning as much as possible and

taking action to prevent recurrence.

432. Further, health and safety data was collected and should an incident occur, it would

be recorded locally by employees, contractors and management using our internal web-based

data management system. Any reported incidents, including the problems on the Gulf Rigs

Atlantis and Deepwater Horizon, would have been reviewed or recklessly disregarded by GORC

and communicated to SEEAC. As such all Defendants would have access to, and knowingly or

recklessly disregarded, information related to the endemic safety problems BP faced in the Gulf of

Mexico during the Subclass Period.

433. According to BP’s 2009 Sustainability Report, to track its progress in process

safety management, it recorded events such as oil spills (those in excess of 100 barrels, e.g

Atlantis). Also leading indicators that focused on the strength of BP’s controls to prevent

undesired incidents, such as inspections and tests of safety-critical equipment , would have been

measured and elevated to executive management through BP’s web-based incident tracking

system. As such, BP’s executive management knowingly or recklessly disregarded the Gulf of

Mexico safety incidents that were occurring during the Subclass Period. Deposition testimony of

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a senior BP safety employee, whose name and exact title are withheld pursuant to the

confidentiality agreements entered in both this action and MDL 2179, testified that an internal database was utilized and was accessible for all recorded safety incidents.

434. As confirmed by a BP safety analyst in deposition testimony from the MDL 2179,

high potential incidents like those described above, including incidents during the Subclass

Period, would have been reviewed at the Board level. The deponent’s name and exact title are

withheld from this Complaint due to Confidentiality Agreements in both this action and the MDL

2179 action. This witness confirmed that he had prepared reports regarding safety incidents that were delivered to the Board or to a Board representative.

435. Additionally, according to a senior member of the BP internal audit team, whose

name and exact title are withheld pursuant to the confidentiality agreements entered in both this

action and MDL 2179, the Gulf of Mexico Operations were audited by a safety and operational

risk audit team, which would have reported to the BP, plc audit committee of which Defendant

Davis, Jr. was a member. The audit committee in turn had reporting responsibilities to the full

Board. Given the myriad safety and operational risk complaints on both the Atlantis and

Deepwater Horizon, including but not limited to the complaints raised by Ken Abbott set forth

above, the true state of the operational safety and risk of the Gulf of Mexico Operations was known or recklessly disregarded by Defendants.

B. DEFENDANTS KNOWINGLY OR RECKLESSLY DISREGARDED FACTS

THAT BELIED THEIR STATEMENTS CONCERNING THE SAFETY OF THEIR

GULF OPERATIONS

436. During the Subclass Period, Defendants had both the motive and opportunity to

commit fraud. For example, under the executive compensation policies adopted by the Board,

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70% of Defendant Hayward’s performance bonus in 2009 would be based on the achievement of

financial metrics and no bonus based process safety.

437. They also had actual knowledge of the misleading nature of the statements they

made or acted in reckless disregard of the true information known to them at the time. In so

doing, Defendants participated in a scheme to defraud and committed acts, practices and

participated in a course of business conduct that operated as a fraud or deceit on purchasers of BP

securities (as set forth herein) during the Subclass Period.

438. At the time of making (and/or adopting) the above referenced misrepresentations

and omissions regarding BP’s internal safety operations, Defendants were aware of facts and

knowingly or recklessly disregarded facts that belied these statements and the omission of which

facts made those statements misleading. In addition to the facts set forth above which show the

falsity of Defendants’ statements (and thus also show scienter in making those statements), the

facts below support a strong inference of scienter.

439. As Defendants had knowledge that the Gulf of Mexico was a key driver for BP and

the documents (many of which were signed or attested to by top officers and directors), testimony,

and confidential statements cited above show, BP had publically stated that new exploration in the

Gulf of Mexico was critical to BP’s growth and success and that it could achieve those results in a

safe manner.

440. However, Defendants also knew that BP had systemic problems relating to its

safety and risk management practices in the Gulf. Evidence of this knowledge is shown as

follows:

• Internal communications by project managers to senior staff in BP that, in the Gulf

of Mexico, project managers and engineers were submitting out-dated information

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that violated BP’s Code of Conduct and created a serious risk of a catastrophic

disaster. This includes the April 15, 2008 Duff e-mail.

• An internal BP presentation in May 2009 citing a shortage of experienced offshore

workers and stating that more training was required to “maintain safe, reliable and efficient operations.”

• In the months leading up the Deepwater Horizon, BP not only knew about

problems on the oil rig, it was BP senior managers who gave direct orders that put

profit and speed before safety. Those orders are one of the principal causes of the

Deepwater Horizon disaster. These facts were concealed and not disclosed to BP

shareholders.

• Defendants Hayward’s and Inglis’ involvement in GORC meant that the Gulf Rig

Atlantis problems were communicated to them. Additionally, as detailed above,

safety critical equipment on the Deepwater Horizon was tested and inspected prior

to the spill, and the results of these tests and inspections, according to BP’s own statements, would have been communicated to GORC.

• GORC members, including Defendants Hayward and Inglis would have received

safety process information via the internal web-based data management system and

as such would have or should have had knowledge regarding the Gulf problems,

including but not limited to the Atlantis and Deepwater Horizon rigs detailed

above.

• BP’s Ombudsman and an independent firm hired by BP 2009 confirmed that BP

failed to complete essential engineering documents and was thereby violating its

own policies on the Gulf Rig Atlantis.

• BP terminated or displaced the highest ranking employees responsible for Gulf of

Mexico Operations in the fourth quarter of 2009 and first quarter of 2010, for among other reasons, concerns these individuals raised related to process safety.

• A December 2008 internal BP strategy document BP strategy document warned

Defendants that BP still did not adequately plan for serious safety risks for its

operations in the Gulf. The document warned that senior management’s failure

to address this shortcoming could result in “multiple injuries/fatalities,” “major

environmental damage,” “catastrophic loss of the facility,” and “damage to corporate reputation.”

• Delayed maintenance on the Deepwater Horizon sister rig because of a tight cost budget which led to a minor oil spill in the Gulf.

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• Some of the same equipment BP had been found to have negligently allowed to

deteriorate at Prudhoe Bay for emergency shutdown, including safety shutoff

valves and gas and fire detectors were found to be lacking and could have helped

prevent the fire and explosion on the Deepwater Horizon.

• BP could have drilled the hole with a “liner” which would have reduced the

blowout risk, but this was rejected because it was slower and up to $10 million

more expensive.

• An internal BP document (Forward Plan Review) recommending against the long

string option because of the risks: “Long string of casing was the primary option” but a “Liner/Tieback . . . is now the recommended option.”

• Advance testing by engineers from Halliburton and BP determining the

unreliability of cementing with a long string production casing. The cementing

experts recommended a shift to a Liner, but that recommendation was resisted by BP.

• Internal BP emails from late March 2010 acknowledged the risks of the Long String design but chose it as the primary option because it “saves a lot of time . . .

at least 3 days,” “saves a good deal of time/money,” and is the “[b]est economic

case.”

• BP’s Senior Management’s selection of six centralizers versus the original

designed 21 to save 10 hours. Six centralizers were selected despite advance

testing by Halliburton which concluded that 21 centralizers was the recommended

number to ensure a secure cement job; using 10 would result in a “moderate” gas flow problem and using only six would result in a “severe” gas flow problem.

• Advance knowledge of three failed negative pressure tests at Macondo and BP’s

admission that these pressure test results were clear warning signs of a “very large

abnormality” in the well.

• BP’s knowledge that the manufacturer of Deepwater Horizon’s blowout

preventer’s had a history of blowout preventer failures. Nevertheless, BP used that manufacturer’s blowout preventer on the Deepwater Horizon.

• Previous disputes with the manufacturer of the blowout preventer that failed on the

Deepwater Horizon concerning blowout preventers.

• A 2004 study by federal regulators showed that blowout preventers may not

function in deepwater drilling environments because of increased force. BP knew

that better blowout preventers were needed for the Deepwater Horizon but

consciously chose not to install them.

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• An MMS study noted that blowouts during cementing work were continuing with

alarming regularity, particularly in the Gulf of Mexico. Cementing was a factor in

18 of 39 well blowouts in the Gulf of Mexico between 1992 and 2006.

• Halliburton, BP’s Deepwater Horizon joint venturer, was responsible for

cementing a well off the coast of Australia that blew in August 2009, leaking oil

for ten weeks before it was plugged. An MMS official has testified that a poor

cement job likely caused the blowout.

• April 6, 2009, letter from MMS to BP indicating risks of drilling at the Macondo

well.

• BP drilling at a depth in excess of the MMS permitted depth despite knowledge the

threat of blowouts increases as drilling depths increase, especially in an area with

such troublesome geology as the Northern Gulf of Mexico and advance warnings

of the same by the MMS.

• BP’s determination, against API guidance and Halliburton recommendation not to

do a “bottoms up circulation” to save time and money.

• Failure to pay for a $128,000 bond long.

• BP’s mandate for 7% reductions in costs for all of its drilling operations in the Gulf

of Mexico.

• Under Hayward’s stewardship, BP slashed $4 billion in expenses in2009 and spent

0.0033 percent of BP revenues on research and development regarding safer

offshore drilling technologies.

• An internal BP audit confirmed safety process problems and outstanding safety

items on the Deepwater Horizon but instead of improving safety on the oil rig,

made efforts to further cut costs.

• A September 2009 BP audit team finding that the Deepwater Horizon suffered from excessive overdue maintenance totaling 390 jobs and 3,545 man hours.

Thirty-one of which included findings that were related to well control system

maintenance, and six related to BOP maintenance. All findings were outstanding

as of December 2009.

• Executive compensation policies where 70% of performance bonuses are based on

the achievement of financial metrics, and only 15% on safety (and not process safety).

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• Congressional testimony by executives of four major oil companies testified that

they did not agree with BP’s methods of operations. “We would not have drilled the well the way they did” stated Exxon Mobil Chairman Rex Tillerson.

• Anadarko’s chief executive, Jim Hackett, stated “The mounting evidence clearly

demonstrates that this tragedy was preventable and the direct result of BP’s

reckless decisions and actions.” Hacket added that he was “shocked” to find that

BP “operated unsafely and failed to monitor and react to several critical warning

signs during the drilling of the Macondo well.

• Congressional testimony by Harry Thierens, BP’s vice president for drilling and

completions, wherein he stated he could not recall what BP had done to improve

safety after the Texas City explosion.

• BP Chief Operating Officer Doug Suttles’s admission that BP did not actually have

a response plan with “proven equipment and technology” in place that could

contain the Deepwater Horizon Spill.

• Defendant Hayward’s admission that “BP’s contingency plans were inadequate,” and that the company had been “making it up day to day.”

• Defendant McKay’s testimonial admission to the House Subcommittee on

Oversight and Investigations, Committee on Energy and Commerce, that BP did

not have the capability and technology to respond to the Deepwater Horizon oil

spill.

• Congressional findings that BP senior officials who were responsible for the

Macondo well were oblivious to the problems at the Macondo well.

• Findings of the NAE that BP “lack[ed] . . . a suitable approach for anticipating and

managing the inherent risks, uncertainties and dangers associated with deepwater

drilling operations” and “fail[ed] to learn from previous near misses.”

441. As a result of their positions with BP, Defendants either knew or were reckless in

failing to know each of the above facts.

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C. CONFIDENTIAL WITNESSES AND GOVERNMENTAL INVESTIGATIONS

PROVIDE AN ADDITIONAL INFERENCE OF SCIENTER

442. As set forth above, confidential witnesses have confirmed that BP’s senior

management knew of systemic safety process problems prior to the Deepwater Horizon. These

witnesses confirm that safety process problems and solutions were submitted to BP’s Board of

Directors and were not implemented at its offshore operations. Moreover, CW2 confirms that

BP’s restructuring threatened the operational safety of BP’s Gulf of Mexico operations and that

this concern was known or should have been known by among other, Defendant Inglis.

443. In addition, lawsuits and/or investigations are now proceeding by the Department

of Justice and States’ Attorney Generals against BP and Defendants, which are further evidence of

scienter.

IX.

PRESUMPTION OF RELIANCE

444. Plaintiffs, representing the Subclass, relied on BP’s statements and would not have

purchased BP securities had they known of BP’s actual safety and risk management practices.

Plaintiffs are also entitled to a presumption of reliance under Affiliated Ute Citizens of Utah v.

United States, 406 U.S. 128 (1972), because the claims asserted herein are predicated in

part upon material omissions of fact that Defendants had a duty to disclose.

445. Additionally, Plaintiffs are entitled to a presumption of reliance on Defendants’

material misrepresentations and omissions pursuant to the fraud-on-the-market doctrine because,

at all relevant times, the market for BP securities, including ADRs, was open, efficient and well

developed. For example, with respect to BP ADRs:

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• BP ADRs met the requirements for listing, and were listed and actively traded, on

the NYSE, a highly efficient market.

• As a regulated issuer of securities in the United States, BP filed Annual Reports on

Form 20-F with the SEC. These reports were publicly available and could be and

were reviewed by the investing public.

• BP ADRs were followed by securities analysts employed by major brokerage firms

who wrote reports which were distributed to the sales force and certain customers

of their respective brokerage firms. Each of these reports were publicly available

and entered into the public marketplace.

• BP regularly issued press releases that were carried by national newswires. Each

of these releases was publicly available and entered the public marketplace.

446. As a result, the market for BP securities promptly digested current information

with respect to BP from all publicly-available sources and reflected such information in BP’s

stock price. The price of BP securities moved in direct response to information regarding the

company that was put out in the public marketplace. For example, the share price of BP ADRs

dropped significantly after the explosion on the Deepwater Horizon and the resulting discovery of

BP’s safety and risk management practices. Under these circumstances, all purchasers of BP

securities during the Subclass Period, including Plaintiffs, relied on the market price of BP

securities and suffered similar injury through their purchase of such securities at artificially

inflated prices and a presumption of reliance applies.

X.

INAPPLICABILITY OF THE STATUTORY SAFE HARBOR

447. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false statements pleaded in this complaint.

The statements alleged to be false and misleading concerned statements of existing or historical

fact or conditions. Additionally, to the extent that any of the statements alleged to be false and

168 Case 4:10-md-02185 Document 112-1 Filed in TXSD on 02/11/11 Page 26 of 96

misleading may be deemed to be forward looking statements, the Defendants are nevertheless

liable for those statements because they were not identified as forward looking statements or, even

if so identified, the statements were material. They were not accompanied by meaningful

cautionary statements identifying important factors that could cause actual results to differ

materially from those in the purportedly forward-looking statements. Additionally, at the time

each of those statements was made, the Defendants had actual knowledge that the particular

forward-looking statement was false or the forward looking statement was authorized and/or

approved by an officer or director of BP who knew that the statement was false when made. In

addition, to the extent that any of the statements set forth above were accurate when made, they

became inaccurate or misleading because of subsequent events, and the Defendants failed to

update those statements that later became inaccurate and/or did not disclose information that

undermined the validity of those statements.

XI.

CLAIMS FOR RELIEF

COUNT I.

VIOLATION OF SECTION 10(b) OF THE EXCHANGE ACT

AND RULE 10b-5 PROMULGATED THEREUNDER

(Against the BP Defendants McKay, Hayward, Svanberg and Inglis)

448. Plaintiffs hereby incorporate by reference all of the allegations set forth above as

though fully set forth hereafter.

449. During the Subclass Period, each of the Defendants carried out a plan, scheme and

course of conduct which was intended to and, throughout the Subclass Period, did deceive the

investing public, including Plaintiffs and other Subclass members, as alleged herein and caused

169 Case 4:10-md-02185 Document 112-1 Filed in TXSD on 02/11/11 Page 27 of 96

Plaintiffs and other members of the Subclass to purchase BP securities at distorted prices that they

would not have paid had they known of the improper conduct alleged herein. In furtherance of

this improper scheme, plan and course of conduct, Defendants, and each of them, took the actions

set forth herein.

450. Defendants: (i) employed devices, schemes, and artifices to defraud; (ii) made

untrue statements of material fact and/or omitted to state material facts necessary to make the

statements not misleading; and (iii) engaged in acts, practices, and a course of business which

operated as a fraud and deceit upon the purchasers of BP securities, including Plaintiffs and other

members of the Subclass, by making false and misleading statements and omitting material facts

regarding BP’s risk management and safety practices generally and specifically as to the Gulf of

Mexico. This was done in an effort to artificially inflate BP’s securities’ value in violation of

Section 10(b) of the Exchange Act and Rule 10b-5. All Defendants are sued as primary

participants in the wrongful and illegal conduct and scheme charged herein. These false

statements and omissions are set forth above.

451. Defendants, individually and in concert, directly and indirectly, by the use, means

or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a

continuous course of conduct to make affirmative misrepresentations and conceal adverse

material information about BP’s safety record and earnings, as specified herein.

452. Defendants employed devices, schemes and artifices to defraud and a course of

conduct and scheme as alleged herein to improperly manipulate and profit and thereby engaged in

transactions, practices and a course of business which operated as a fraud and deceit upon

Plaintiffs and members of the Subclass.

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453. As set forth above, Defendants had actual knowledge of the misrepresentations and

omissions of material facts set forth herein, or acted with reckless disregard for the truth in that

they failed to ascertain and to disclose such facts, even though such facts were available to them.

Defendants’ material misrepresentations and/or omissions were done knowingly or recklessly and

for the purpose and effect of inflating the market price of BP securities, including ADRs.

454. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market prices of BP securities were

distorted during the Subclass Period such that they did not reflect the true financial health and risk

management and safety practices of BP as alleged herein. In ignorance of these facts, the market

prices of the shares were distorted, and relying directly or indirectly on the false and misleading

statements made by the Defendants, or upon the integrity of the market in which the securities

trade, and/or on the absence of material adverse information that was known to or recklessly

disregarded by Defendants but not disclosed in public statements by Defendants during the

Subclass Period, Plaintiffs and the other members of the Subclass acquired the shares or interests

in BP during the Subclass Period at distorted prices and were damaged thereby when the value of

their shares fell after the truth became known, representing the causal connection between

Defendants’ fraud and Plaintiffs’ damages.

455. At the time of said misrepresentations and omissions, Plaintiffs and other members

of the Subclass were ignorant of their falsity, and believed them to be true. Had Plaintiffs and

other members of the Subclass and the marketplace known of the truth concerning BP’s

operations, which were not disclosed by Defendants, Plaintiffs and other members of the Subclass

would not have purchased or otherwise acquired their shares or, if they had acquired such shares

171 Case 4:10-md-02185 Document 112-1 Filed in TXSD on 02/11/11 Page 29 of 96

or other interests during the Subclass Period, they would not have done so at the distorted prices

which they paid.

456. By virtue of the foregoing, Defendants violated Section 10(b) of the Exchange Act,

and Rule 10b-5 promulgated thereunder.

COUNT II.

VIOLATION OF SECTION 20(a) OF THE EXCHANGE ACT

(Against the Individual Defendants )

457. Plaintiffs hereby incorporate by reference all of the allegations set forth above as

though fully set forth hereafter.

458. It is appropriate to treat the Individual Defendants and BP as a group for pleading

purposes and to presume that the materially false, misleading, and incomplete information

conveyed in the BP public filings, press releases and other publications are the collective actions

of the Individual Defendants and BP.

459. The Individual Defendants acted as controlling persons of BP within the meaning

of Section 20(a) of the Exchange Act for the reasons alleged herein. By virtue of their operational

and management control of BP’s respective businesses and systematic involvement in the

fraudulent scheme alleged herein, the Individual Defendants named herein each had the power to

influence and control and did influence and control, directly or indirectly, the decision-making

and actions of BP, including the content and dissemination of the various statements which

Plaintiffs contend are false and misleading. Each of the Individual Defendants named herein had

the ability to prevent the issuance of the statements alleged to be false and misleading or cause

such statements to be corrected.

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460. Each of the Individual Defendants named herein had direct and supervisory

involvement in the operations of BP and, therefore, did have the power to control or influence the

implementation of BP’s risk management and safety procedures for its oil exploration and

production operations, including those that relate to the Deepwater Horizon disaster that give rise

to the securities violations as alleged herein, and exercised the same.

461. Each of the Individual Defendants named herein, by virtue of their high-level

positions and participation in and/or awareness of BP’s operations, had the power to influence and

control and did influence and control, directly or indirectly, the decision-making of BP, including

the content and dissemination of the various statements that Plaintiffs contend are false and

misleading. The Individual Defendants were provided with or had unlimited access to copies of

BP’s reports, press releases, public filings and other statements alleged by Plaintiffs to be

misleading prior to and/or shortly after these statements were issued and had the ability to prevent

the issuance of the statements or cause the statements to be corrected. BP controlled the

Individual Defendants and all of its employees.

462. As set forth above, Defendants BP, McKay, Hayward, Svanberg and Inglis

violated Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint.

By virtue of their positions as controlling persons, each of the Individual Defendants is liable

pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of Defendants’

wrongful conduct, Plaintiffs and other members of the Subclass suffered damages in connection

with their purchases of BP securities during the Subclass Period at inflated prices and the losses

suffered when the value of their shares fell after the truth became known, representing the causal

connection between Defendants’ fraud and the damages suffered by Plaintiffs and the Subclass.

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XII.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs, on behalf of themselves and the Subclass, pray for judgment as

follows:

1. Declaring this action to be a proper action pursuant to Rule 23 of the Federal Rules

of Civil Procedure on behalf of the Subclass defined herein;

2. Awarding Plaintiffs and all members of the Subclass damages against the

Defendants, jointly and severally, in an amount to be proven at trial;

3. Awarding Plaintiffs and members of the Subclass pre-judgment interest, as well as

reasonable attorneys’ fees and other costs;

4. Awarding such other relief as this Court may deem just and proper.

/ / /

/ / /

/ / /

174 Case 4:10-md-02185 Document 112-1 Filed in TXSD on 02/11/11 Page 32 of 96

XIII.

JURY TRIAL DEMAND

Plaintiffs, pursuant to Federal Rule of Civil Procedure 38, demand a trial by jury of all

issues which are subject to adjudication by a trier of fact.

Dated: February 11, 2011

By s/ Joseph W. Cotchett By s/ Richard W. Mithoff

COTCHETT, PITRE & McCARTHY MITHOFF LAW FIRM

Joseph W. Cotchett Richard W. Mithoff

Mark C. Molumphy Texas Bar Number: 14228500

Jordanna G. Thigpen William J. Stradley

Imtiaz A. Siddiqui Texas Bar Number: 19353000

Matthew K. Edling One Allen Center

840 Malcolm Road 500 Street

Burlingame, CA 94010 Houston, TX 77002

Telephone: (650) 697-6000 Telephone: 713-654-1122

Fax: (650) 697-0577 Fax: 713-739-8085

Co-Lead Counsel for Lead Plaintiffs and the Attorney-In-Charge and Co-Lead Counsel

Proposed Subclass for Lead Plaintiffs and the Proposed Subclass

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EXHIBIT A Case 4:10-md-02185 Document 112-1 Filed in TXSD on 02/11/11 Page 34 of 96

HISTORY OF SAFETY LAPSES

February 1985 : BP pays £15,000 for safety violations after a gas blowout in the 1 North Sea.

March 1989 : Exxon Valdez spill. BP was responsible for containing the

spill but they did not have adequate/proper equipment and was unable to respond. Exxon took over the clean-up operations.

Browne was head of BP E&P at the time and later became BP’s CEO.2

March 1998 : BP fined £750,000 after the Grangemouth Explosions that

killed three workers. Reports of a chemical leak were ignored 3 while a BP employee maintained it was safe to continue work.

October 1990 : BP fined $2.3 Million for dumping pollutants from its 4 Pennsylvania refinery into the Delaware River for 6 years.

July 1991 : BP fined $135,000 for violations that lead to a Washington

state refinery exploding and killing 1 worker and injuring 6 others.5

April 1994 : BP Chemicals fined £200,000 for a fire that started at the

1 The Guardian (London). “BP Fined 15,000 pounds on safety charge after North Sea

fire.” February 6, 1985.

2 CBS News. “BP Played Central Role in Exxon Valdez Disaster Two Decades after

Alaska Spill, Observers Find Eerie Similarities in Oil Company's Slow Containment Response.” May 25, 2010.

3 (Glasgow). “BP is fined pounds 750,000 after fatal blast at refinery.” March

22, 1988.

4 Associated Press. "BP Oil assessed $2.3 million fine for polluting river. (Delaware

River)." The Oil Daily. Energy Intelligence Group. October 24, 1990.

5 Lange, Larry. “Refiner cited for violations in fatal blast; British Petroleum fined record

$135,000 for safety 'shortcuts.'” Seattle Post-Intelligencer. July 16, 1991.

1 Case 4:10-md-02185 Document 112-1 Filed in TXSD on 02/11/11 Page 35 of 96

Grangemouth plant. One worker was killed in the fire and 3 were seriously burned. 6

March 1999 : BP paid $1.75 Million to the EPA for illegally discharging

pollutants into the air and not alerting emergency response 7 authorities of their actions at an Ohio refinery.

May 1999 : BP Exploration fined £20,000 for violating health and safety

regulations that lead to an explosion on a North Sea gas 8 platform.

February 2000 : BP Exploration pays $22 Million in fines and civil penalties for

dumping hazardous materials at a North Slope oil field and 9 failing to notify authorities.

April 2000 : BP Amoco paid $32 Million to settle claims that BP underpaid royalties on oil leases on Federal and Indian land. 10

June 2000 : BP fined $1.43 Million when a steam line ruptured at

Grangemouth and threatened local residents. Three days later

Grangemouth had a flammable gas leak that led to a 9 ton 11 vapor explosion.

BP fined £15,000 for dumping pollutants into the River Tweed with home heating oil, and spent another £200,000 for clean-

6 The Herald (Glasgow). “BP Chemicals fined £200,000 over death fire.” April 22, 1994.

7 US Environmental Protection Agency press release. “BP Oil must monitor flaring of

gases at Toledo refinery.” March 15, 1999.

8 The Herald (Glasgow). “Maximum fine for oil firm over gas explosion.” May 11, 1999.

9 Speiss, Ben. “BP settles for $15.5 million; company also faces probation in dumping of toxic waste.” Anchorage Daily News. February 2, 2000.

10 Sniffen, Michael J. “BP Amoco to Resolve Royalties Case.” Associated Press. April

11, 2000.

11 “Grangemouth incidents scar BP.” The Oil Daily. January 23, 2002.

2 Case 4:10-md-02185 Document 112-1 Filed in TXSD on 02/11/11 Page 36 of 96

up.12

January 2001 : Eight refineries at BP Amoco violated the Clean Air Act which

resulted in BP Amoco paying $600 million to resolve and

another $10 million in civil penalties. 13

March 2001 : Three workers killed during explosions at BP Amoco Polymers 14 Plant, located in Augusta, Georgia.

September 2001 : BP fined $141,000 by OSHA that related to the explosion and

fire at a North Carolina facility. Three employees were killed during this accident.

October 2001 : BP fined £200,000 for exposing their platform workers to gas leaks for 4 years on an Amoco gas platform. 15

December 2001 : BP fined £60,000 when a gas station in Luton, England leaked

40,000 liters of gas. 16

July 2002 : BP settled a suit for $46 million that alleged its Arco

Subsidiary failed to improve leaking underground fuel storage 17 tanks at 59 gas stations for over 10 years.

2003 - 2004 : BP paid $303.5 million in fines, penalties and restitution to

settle charges against them that they manipulated the propane

12 . “BP fined 15,000 pounds over river pollution.” June 14, 2000.

13 US Environmental Protection Agency press release. “EPA finalizes agreement with petroleum refinery.” January 19, 2001.

14 Edwards, Johnny. “Three die in fatal explosion at Augusta, Ga. BP Amoco Polymers

Plant.” Augusta Chronicle. March 14, 2001.

15 The Scotsman. “BP fined more than GBP 200,000.” October 13, 2001.

16 “One fuel spill BP need worry about no longer.” Luton Today. May 14, 2010.

17 Carrell, Severin. “BP pays $46m settlement after breaching US anti-pollution laws.”

The Independent. July 7, 2002.

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market, drove up prices for consumers while generating a $20 million profit. 18

July 2004 : BP fined £25,000 for leaking 6.5 tonnes of diesel fuel into the

North Sea while its supply ship was trying to refuel a drilling platform. 19

November 2004 : BP fined £200,000 for a gas leak from its Forties Alpha North

Sea platform in 2002. 20

March 2005 : An explosion and fire at BP’s Texas City Refinery killed 15

workers and injured over 170 people. 21 Monitoring alarm

systems failed to alert the plant that highly combustible

chemicals and vapors were overfilling the unit which caused

the explosion.22 This accident was the worst industrial accident 23 in the U.S. in the past 15 years. The Chemical Safety Board

said that BP’s lack of safety procedures and safety culture

attributed to this major accident. 24 Investigators also

determined that budget cuts within BP and production

18 U.S. Commodity Futures Trading Commission. Press Release. “U.S. Commodity

Futures Trading Commission Charges BP Products of North America, Inc. with Cornering the

Propane Market and Manipulating the Price of Propane.” June 28, 2006; BP Statement on

Settlements. “BP America Announces Resolution of Texas City, Alaska, Propane Trading Law

Enforcement Investigations.” October 25, 2007.

19 Innes, John. “Diesel spill in sea costs BP £25,000.” Scotsman. December 6, 2005.

20 Barry, Maggie. “Gas Leak: BP Fined.” . November 17, 2004.

21 U.S. Occupational Health and Safety Administration. Press Release. “OSHA Fines BP

$2.4 Million for Safety and Health Violations.” April 25, 2006.

22 Porretto, John and Dan Caterinicchia. “Probe of BP plant blast cites oversight.”

Associated Press.

23 Porretto, John and Dan Caterinicchia. “Probe of BP plant blast cites oversight.”

Associated Press. Olsen, Lise. “BP refinery deaths top industry in U.S.” Houston Chronicle.

May 16, 2005.

24 “Poor BP safety standards at root of refinery blast.” Birmingham (UK) Post. March 20,

2007.

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pressures on managers affected process safeties. As a result,

BP was fined $50 million for violating the Risk Management

Plan regulations under the Clean Air Act. In addition, BP paid

$21 million to OSHA for workplace safety violations and another $1.5 billion in damages and repairs.

July 2005 : Hurricane Dennis damaged and destabilized the Thunder Horse

Deep Sea Platform in the Gulf of Mexico. 25 BP found a ballast

piping was installed incorrectly which caused the Platform to 26 dip into the Gulf. BP also found additional problems in 2006

with their subsea equipment and compressions systems. 27

August 2005 : BP’s Board commissioned the Baker Panel after the CSB

warned that BP had serious safety management lapses. CSB

urged the BP Board to look into their safety oversight, safe

management of refineries, and their corporate safety culture.

March 2006 : BP’s Prudhoe Bay facility leaked 267,000 gallons of crude oil,

from a corroded pipeline, into Alaska’s North Slope, which was deemed “the largest spill of crude on the North Slope.” 28

Similarly in August 2006, BP had to shut down Prudhoe Bay

due to a second corroded pipeline which caused another small 29 leak. BP admitted that they disregarded the necessary steps

and actions to avoid the spill and eventually paid $20 million in

fines and restitution. 30 BP also paid $1.7 million in fines to

25 Andrew, Kelly. “Delays at Thunder Horse add to BP’s woes.” The Oil Daily.

September 19, 2006.

26 Greising, David. “Troubles run deep on Gulf oil platform.” Chicago Tribune. May 28,

2007.

27 “New Thunder Horse Woes.” International Petroleum Finance. June 1, 2006.

28 “Alaska hit by ‘massive’ oil spill.” BBC. March 11, 2006.

29 BP. Press Release. “BP to shutdown .” August 7, 2006.

30 BP Statement on Settlements. “BP America Announces Resolution of Texas City,

Alaska, Propane Trading Law Enforcement Investigations.” October 25, 2007.

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Alaska for oil spill containment violations in 2009. 31 As of

2010, U.S. authorities are still trying to collect millions of

dollars from BP for water and air pollution violations and

neglecting their promised deadlines to prevent future spills. 32

April 2006 : BP fined $2.4 million for workplace safety violations at its

Ohio refinery. These violations were similar to those that

contributed to the Texas City disaster. 33

August 2006 : A pipeline technician, Stuart Sneed, working on the Prudhoe

Bay, found a crack in a transit line pipeline and issued orders

for all nearby welders to stop working, for fear of igniting a

fire. BP retaliated and fired Sneed two weeks later. Arbitrators

were brought in to investigation and confirmed Sneed’s story.

September 2006 : BP fined $900,000 by the EPA for discharging volatile organic

compounds from its gas stations. 34

September 2006 : Report commissioned from the Vinson & Elkins law firm

found that BP’s environment was not conducive for employees 35 to report problems to upper management. For example, a BP

worker filed a complaint that the corrosion inspection staff was

31 Alaska Department of Law and Alaska Department of Environmental Conservation.

Press Release. “State Reaches Settlement with BP Exploration (Alaska) Inc.” September 22,

2009.

32 Loy, Wesley. “Federal regulators, BP work on settlement for ’06 spills.” Anchorage

Daily News. May 23, 2010.

33 U.S. Occupational Health and Safety Administration. Press Release. “OSHA Fines BP

$2.4 Million for Safety and Health Violations.” April 25, 2006.

34 US Environmental Protection Agency. “BP, Shell Pay $1.5 Million in Penalties for

Auto Gas Violations Threatening Public Health.” October 5, 2006.

35 Davidson, Paul. “Congressmen slam BP executives at Alaskan oil leak hearing.” USA

Today. September 7, 2006.

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cut by 25% and he was threatened with firing. 36

December 2006 : Supply boat hits the North Sea platform’s support legs and was

evacuated. Structural integrity of platform may have been compromised.37

January 2007 : Baker Report was issued and the panel found that BP had not

provided effective process safety leadership and had not

established process safety as a core value across BP’s refineries.

March 2007 : CSB issued their final report regarding the investigation into

the Texas City disaster. The report stated that the BP, “Board

of Directors did not provide effective oversight of BP’s safety

culture and major accident prevention programs.”

Booze Allen reported that BP’s strategy of focusing on

financial performance over operational safety created a culture

where all projects and activities must fit into a budget, whether

it was safe or not.

June 2007 : BP fined $869,000 by state of Michigan for ignoring and

failing to clean up leaking gas station tanks even though BP was aware of these leaking tanks for years. 38

July 2007 : BP settled with California utilities and paid $18 million for

overcharging customers for electricity during California’s energy crisis in 2000 and 2001. 39

36 Mauer, Richard. “BP was warned of intimidation.” Anchorage Daily News. October 3,

2007.

37 “Alert on oil platform after collision.” (Aberdeen) Press and Journal. December 14,

2006.

38 Lam, Tina. “BP is fined for leaking underground tanks.” Detroit Free Press. June 2,

2007.

39 “U.S. FERC approves $18 mln BP-California settlement.” . July 6, 2007.

7 Case 4:10-md-02185 Document 112-1 Filed in TXSD on 02/11/11 Page 41 of 96

August 2007 : BP settled a class action lawsuit that alleged BP underpaid

landowners for the right to drill oil on their land for $35 million.40

October 2007 : BP pleads guilty and agreed to pay a $20 million fine related

with the Alaska oil spills. BP also had to pay a $12 million

criminal fine and serve 3 years of probation.

BP also announced 2 plea agreements and a deferred

prosecution agreement with U.S. DOJ related to the Texas City disaster.

May 2008 : The Deepwater Horizon rig flooded with sea water due to removed piping and caused $1 million in damages.

Investigators concluded that the piping was removed without

permit or authority from management.

June 2008 : Atlantis rig spilled 193 barrels of oil into the Gulf of Mexico

due to a ruptured steel tubing. Investigators concluded that BP managers postponed repairs due to cost savings and budget. 41

August 2008 : The Deepwater Horizon lost power for two minutes and almost

drifted into the sea.

Ken Abbott, BP’s production manager, e-mailed colleagues and

warned that hundreds of documents of “as built” documents for

the Atlantis rig were never finalized. He warned that having the wrong documents could lead to catastrophic failures.

Abbott was terminated after his concerns were raised.

September 2008 : An eight-inch high pressure gas line in Alaska separated.

There were no injuries but investigators found that the incident

40 Laura Dichter et. al v. BP America Production Company. Case No.

D-0101-CV-200001620, State of New Mexico, First Judicial District. Notice of Settlement.

August 15, 2007.

41 Guy Chazan, Benoit Faucon, and Ben Casselman. “AS CEO Hayward Remade BP,

Safety, Cost Drives Clashed.” Wall Street Journal. June 29, 2010.

8 Case 4:10-md-02185 Document 112-1 Filed in TXSD on 02/11/11 Page 42 of 96

could have been potentially catastrophic. According to

Alaska’s Petroleum Systems Integrity Office, the separation

resulted from “procedures that either were not in place or had

not been fully implemented at BP in their management

system.”

BP evacuated 212 workers from rig when a blowout caused the

Azeri-Chirag-Guneshli field to be shut down for weeks. BP

concluded that the blowout was caused by a faulty cement job.

February 2009 : BP fined $180 million by the EPA for violating the Clean Air Act in connection with the Texas City disaster. 42

March 2009 : U.S. Federal Court in Houston approved BP’s guilty plea and

$50 million criminal fine for a criminal workplace safety

charge in connection with the Texas City Refinery disaster. BP

America Chairman and President, Bob Malone, admitted that

had BP’s safety and risk management were more disciplined

and comprehensive, the Texas City disaster could have been

avoided altogether. 43

January 2010 : U.S. House of Representatives members Bart Stupak and Henry

Waxman wrote to BP’s president of Alaskan operations, and

warned that the Company’s efforts to cut costs could imperil

safety at BP facilities: “Committee staff have received reports

that proposed budget cuts by BP may threaten the company’s

ability to maintain safe operations.” Attached to the

Congressmen’s letter was a request for documents. The letter

and the document requests were discussed with the Board.

U.K. Health and Safety inspectors visited the Magnus rig off

the coast of Scotland and found that confusion existed about

42 US Environmental Protection Agency. “BP Products to pay nearly $180 million to

settle Clean Air violations at Texas City Refinery.” February 19, 2009.

43 BP America, Inc Press Release. “BP America announces resolution of Texas City,

Alaska, propane trading, law enforcement investigations.” October 25, 2007; British Petroleum.

U.S. Securities and Exchange Commission filing 20-F, 2009.

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who would order a well shut-off in event of a blowout. 44

EPA attorneys sent an email to BP General Counsel, Jack

Lynch, stating that: “[i]t appears that BP, regardless of its code

of conduct and statements to the government, will do whatever

is necessary to cover up the improper actions of its senior

managers. This promotes intimidation, retaliation, blackballing

and unethical behavior in the management ranks, and a culture

of fear and lack of ethics in the employee ranks. Nothing has

been done in TWO YEARS. This is a current graphic example of why EPA does not trust BP.” 45

April 2010 : Deepwater Horizon disaster.

44 Tom Bergin & Daniel Fineren, BP North Sea rig lacked procedures on blow-outs

(Reuters Sep. 15, 2010).

45 Abrahm Lustgarten, Furious growth, cost cuts led to BP accidents past and present

(ProPublica, October 26, 2010).

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