Last updated: February 5, 2013 6:58 pm

Claims may push BP’s spill bill to $90bn

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BP is facing damages demands of more than $34bn from US states and local government over the 2010 Deepwater Horizon disaster, a figure that could lead to significant upward revisions of its potential bill for the Gulf of Mexico spill.

The energy group on Tuesday said Alabama, Mississippi, Florida and Louisiana had all presented claims for alleged losses, including economic and property damage, as a result of the catastrophe.

The newly-detailed claims would imply a total bill of more than $90bn for the British company if the maximum possible penalties and damages are awarded. BP has so far set aside $42bn in provisions.

However, BP said it considered the methods used to calculate the states’ claims, which include punitive damages and other ratcheting factors, to be “seriously flawed” and called the demands “substantially overstated”.

“Should [they] proceed to trial, BP will defend vigorously against them,” it said.

News of the states’ demands is a fresh example of how BP continues to be overshadowed by the 2010 disaster, caused when a well it was drilling in the Gulf of Mexico blew out, killing 11 men and triggering the worst oil spill in US history.

Since the disaster, BP has divested nearly $38bn of assets – partly to cover spill-related costs, and partly to reposition itself as a more streamlined company with a high-growth portfolio and a tighter focus on oil exploration.

But a figure of $34bn would put an even larger burden on BP’s finances. It would be in addition to the roughly $32bn in cash BP has already spent to date on the spill, including clean-up costs and compensation.

It also does not include penalties it is expected to face under the US Clean Water Act. These alone could reach $21bn, if BP is found to have acted with gross negligence.

Brian Gilvary, BP’s chief financial officer, said the bulk of the states’ claims were based on the argument – rejected by the company – that the spill had deprived them of tax revenue.

“That would be an interesting thing to try to prove, given we probably provided one of the biggest fiscal stimuluses that the Gulf has ever seen,” he said. “We hired up over 40,000 people to deal with [the spill] and paid taxes as a consequence.”

Mr Gilvary declined to say how much BP had set aside to cover economic claims from the Gulf states, but said it sat within the existing $42bn provision.

He was speaking as the company revealed fourth-quarter profits that were 20 per cent down on a year ago as divestments – particularly the sale of BP’s Russian joint venture TNK-BP – hit earnings and production.

Clean underlying replacement cost profit, which strips out changes in the value of inventories, was $4bn, compared with $5bn a year ago – broadly in line with analysts’ expectations.

Fourth-quarter production, excluding TNK-BP, was 2.29m barrels of oil equivalent a day, 7 per cent lower than a year ago. The company said output would be lower in 2013, with asset disposals reducing production by 150,000 barrels of oil equivalent per day.

BP also revealed that it had revised upwards from $7.8bn the expected cost of a deal it reached last year to compensate people and businesses hurt by the Gulf spill. The company said that in the third and fourth quarters of last year it increased the provision for the settlement by $680m to $8.5bn.

It said claims received under the settlement to date were being paid at a higher average amount than it had previously assumed in formulating the original estimate of the cost. If this trend continued, “BP’s provision for these claims is likely to be significantly increased”, it added.

A civil trial over the Deepwater Horizon accident is due to start in New Orleans in less than three weeks’ time

It involves US federal, state and local authorities, as well as private individuals and businesses bringing action against BP and other companies involved in the disaster. Shares in BP closed 1.4 per cent higher at 468.7p.

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