A deadly explosion at BP's huge refinery near Galveston, Texas, will open up the world's second biggest oil company to liabilities that could run into the billions of dollars, experts said on Thursday.
The blast at the 71-year-old refinery killed at least 15 people and severely damaged some refining equipment at the nation's third-largest oil refinery, raising the specter of litigation, regulatory fines and costly reconstruction bills.
"There will be worker's compensation issues for both lost time and medical costs," said Christopher Guidette, an assistant vice president at ISO, which provides analysis and support to help insurers manage and assess risk.
Other risk analysis sources who declined to be identified said damage to the refinery and potential litigation could put the costs of the incident over a billion dollars, though no detailed damage assessments are yet available.
State and federal regulators on Thursday were starting their investigations into the incident.
BP officials said the explosion happened in an isomerization unit, which boosts octane content in gasoline. Sources with knowledge of the refinery, which can process 470,000 barrels per day of crude oil, said the explosion occurred near other units already shut for maintenance.
BP Chief Executive Officer John Browne said the incident reduced gasoline production from the refinery by no more than 5 percent. The refinery accounts for 3 percent of U.S. gasoline output.
Insurance will cover some of damage, but it's too early to tell how much, according to insurance experts.
Much of the potential liability rests on whether the accident was caused by negligence, said Michael Epstein, lawyer at Weil, Gotshal & Manges.
If that turns out to be the case, the companies involved could easily be sued for a couple of hundred million dollars in damages, he said. However, since most companies are insured for accidents and events such as this, it may mean that insurance companies end up footing the bill.
"Most companies are going to be concerned in large part about the workers that are injured or killed and about their reputation," said Epstein. "I think the legal liability, unless there's something we don't know about, is manageable in terms of potential dollar exposure and I suspect most of it is insured."
If there is no negligence and the liability only involves compensating victims, companies typically pay out about between $1 million to $10 million for each death, said one lawyer, who did not wish to be named.
BP head Browne, who flew into Texas City after the explosion, called the refinery "a very safe plant."
This was the third fatal accident in the last year at the refinery, which has been cited for violations and fined in the past by the the Occupational Safety and Health Administration (OSHA).
A worker died in a fall last May, and two were killed and one injured in September when scalding hot water burst from a pipe.
A large explosion and fire also occurred last March 30, although no deaths or serious injuries were reported.
Jeff Wigington, lawyer representing the family of a worker who died last May in a fall at the refinery, said his investigators had found the refinery to be very unsafe. "Our investigation has thus far revealed that there are significant safety problems."
Browne's flying into the site sent an important signal to the community of Texas City as well to the outside.
When a tragic accident like this occurs, a company must react immediately to the loss of life and injuries, and make the other workers feel safe, said Bill Miller of Hillco Partners in Austin, Texas.
"You've got to reach out. You've got to comfort. It looks like they have. They have to keep on doing it," Miller said.
But BP's decision to keep the refinery running during a human tragedy might be poor for its reputation, one expert said.
"With today's action, BP blows a hole in its image," said Bradley Johnson, editor-at-large at Advertising Age, a marketing publication.
