(Adds query from judge and lawyers' response, paragraphs 9-10)
By Jonathan Kaminsky
NEW ORLEANS, Jan 20 (Reuters) - BP Plc, citing lowoil prices, tried to whittle away at $13.7 billion in potentialfines under the Clean Water Act on Tuesday as the penalty phasestarted in its trial over the 2010 Gulf of Mexico oil spill.
BP said its fine should be modest as it took extensive stepsto mitigate the worst offshore disaster in U.S. history and thatthe defendant named in the case, BP's exploration and productionunit, known as BPXP, cannot afford a big penalty.
"There has been no collapse of the ecosystem," BP lawyerMike Brock said in opening statements, contending that the Gulfhas been more resilient than thought. Environmental groups sayit could take decades for the Gulf to recover.
Brock said the penalties should take into account BPXP'sability to pay, and not be tied to the balance sheet of itsparent company.
He said a 60 percent drop in oil prices since June hasslashed BPXP's value to about $5.1 billion, down from $16billion just months ago.
The government knows that "BPXP cannot afford a penalty inthe range that they are asking for, and so that's why they aresaying look to the parent," Brock said.
Steve O'Rourke, the government's lawyer, said BPXP and BPare effectively the same company. He urged a fine of $11.7 to$13.7 billion.
"BP's litigation position in this phase suggests that itstill doesn't understand the gravity of what's happened here,they continue to focus on their own hardships rather than thehardships of the environment and the people," O'Rourke said.
U.S. District Court Judge Carl Barbier asked during Brock'sopening statements whether the parties believed the penaltiescould be paid over a period of years given the current state ofBPXP's finances.
Brock said he was not sure, while O'Rourke said suchprecedent exists.
Clean Water Act rules say when assigning penalties the courtmust look at BP's ability to pay, steps it took to clean up thespill, and its history of past violations.
In 2012, one person was killed and two were injured at a BPnatural gas plant in Colorado. The Macondo blowout in 2010killed 11 men on Transocean Ltd's Deepwater Horizondrilling rig.
In 2005, 15 died in an explosion at BP's Texas Cityrefinery, which the company later sold. In 2006, oil spilledfrom a BP-operated pipeline in Alaska. And in 2005, BP's ThunderHorse oil and gas platform in the Gulf of Mexico nearly sankbecause of a design flaw, postponing its startup by three years.
The Clean Water Act penalties would come on top of more than$42 billion the oil major has set aside for cleanup,compensation and fines. About 810,000 barrels were collectedduring cleanup.
Several billion dollars in potential fines were avoided onThursday when Barbier put the size of the spill at 3.19 millionbarrels. That was well below the government's estimate of 4.09million barrels, which could have led to $17.6 billion in fines.
The first two phases of the trial, over the degree ofnegligence and the spill's size, have concluded. The penaltyphase is expected to last three weeks.
Under a "gross negligence" ruling Barbier issued inSeptember, BP could be fined a statutory limit of $4,300 foreach barrel spilled, though he has authority to set lowerpenalties.
BP has also filed motions saying the maximum fine per barrelis in fact just $3,000 because Congress never passed laws toadjust it for inflation.
A simple "negligence" ruling, which BP sought, caps themaximum fine at $1,100 per barrel. (Writing by Terry Wade; Editing by Lisa Shumaker, Anna Driverand Tom Brown)
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