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The scorn heaped upon BP following the biggest offshore oil spill in U.S. history in 2010 wasn’t echoed at the U.S. Defense Department. It stepped up purchases from the London-based company, making it the Pentagon’s biggest fuel supplier.

BP’s contracts with the military surged 33 percent to $1.35 billion in the fiscal year that ended Sept. 30 from $1.02 billion in fiscal 2010, according to data compiled by Bloomberg Government. BP received 49 percent more in defense contracts than the No. 2 fuel supplier, San Antonio-based Valero Energy Corp.

To critics, BP’s favored spot at the Pentagon cash window adds insult to the injury caused by the April 2010 explosion of the Deepwater Horizon oil rig in the Gulf of Mexico. The incident killed 11 workers, sullied hundreds of miles of coastline and crippled the region’s fishing and tourism industries.

“When BP still owes billions of dollars in possible fines and penalties for their spill in the Gulf of Mexico, our military shouldn’t renew lucrative contracts” for the company, said Massachusetts Representative Edward Markey, the top Democrat on the House Natural Resources Committee. It’s time “for our government to stand up to BP,” Markey said in an e- mail.

A trial to determine compensation for businesses and residents victimized by the spill is scheduled to begin Feb. 27 in New Orleans federal court. The company also faces hundreds of other lawsuits, at least 40 filed by survivors or relatives of the 126-member crew that was aboard the rig.

‘Not Right’

“BP still hasn’t fulfilled its commitment to fund the restoration of the Gulf of Mexico, but they pocketed $26 billion of profits last year, thanks in part to these government contracts, and that’s not right,” Jeremy Symons, senior vice president at the National Wildlife Federation in Reston, Virginia, said in an interview.

Most of the contract money awarded to BP by the Defense Department was subject to full and open competition, according to federal procurement data. The company offered the lowest price, said Michelle McCaskill, a spokeswoman for the Defense Logistics Agency, which buys fuel for the Pentagon.

Government agencies are allowed to suspend or disqualify companies from receiving contracts if they have committed or are suspected of committing wrongdoing.

“BP is neither suspended nor debarred and is therefore eligible to offer on and receive U.S. government contracts,” McCaskill said in an e-mail.

Biggest Consumer

The company’s facilities in the Gulf of Mexico don’t play any role in its government work, said Scott Dean, a BP spokesman in Warrenville, Illinois. He declined to comment further on the company’s contracting.

The Pentagon awarded $14.7 billion in fuel contracts in fiscal 2011. Eleven suppliers accounted for half of the total, led by BP, the world’s sixth-biggest oil company by market value.

Also among the top 10 Pentagon fuel suppliers are No. 6 Chevron Corp., the fourth-largest oil company by market value and No. 4 Royal Dutch Shell, which ranks third by the same measure. Exxon Mobil Corp., the world’s biggest publicly traded oil company, was the Pentagon’s 12th-largest supplier last year.

Too Big

The military’s hunger for oil may make it too difficult to eliminate major providers, said Scott Amey, general counsel of the Project on Government Oversight, a watchdog group in Washington. Excluding countries, the Defense Department is the world’s biggest consumer of energy.

“There is a sense that large federal contractors, like BP, are too big to suspend or debar,” Amey said in an e-mail.

“The government’s over-reliance on such companies can make it nearly impossible to hold them accountable, absent a monetary penalty and promises to keep clean,” he said. “Temporarily cutting off millions or billions in taxpayer funds seems like a better way to get a company’s attention and truly alter corporate culture.”

The military’s global reach makes geography an important determinant of the Pentagon’s fuel suppliers. Valero, Chevron and World Fuel Services Corp., a Miami-based marketer of marine and aviation fuel, are the only U.S.-based companies among the top 10. World Fuel ranked No. 5 last year with $858 million in fuel contracts, a notch ahead of San Ramon, California-based Chevron, with $620 million.

Local Purchases

“Almost all of the fuel used by the military services overseas is purchased overseas,” the Defense Logistics Agency’s McCaskill said. “As a result, many of the contract dollars are awarded to foreign-based companies.”

It’s often less costly and easier for the government to buy oil from local suppliers, said Pavel Molchanov, a Houston-based analyst with Raymond James & Associates Inc.

“When I talk about those geographies where U.S. companies have very limited access, I’m thinking of places like Afghanistan, Pakistan, the Horn of Africa,” Molchanov said in an interview. Even in countries like Germany and Japan, where the Defense Department “has a very large presence,” it may be cheaper to use a local supplier, he said.

The Gulf catastrophe may yet cost BP some of its business with the Pentagon, from which the company received $7.06 billion in fuel contracts in the last five years.

Read more here:  http://www.bloomberg.com/news/2012-02-24/bp-wins-most-pentagon-fuel-awards-in-year-after-gulf-of-mexico-explosion.html

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