April 4, 2013 7:17 pm

BP in key hearing on gulf oil spill costs

Businesses in the Gulf of Mexico region are not short of advice on what to do about the settlement that BP signed last year with plaintiffs’ lawyers to resolve damages claims over the 2010 oil spill.

“It is possible to have suffered defined damages, even without a decrease in net income!” says one law firm’s website.

“If the numbers work, there is no need to provide proof that BP caused your loss – the law presumes BP caused the loss,” says another, which estimates that about 80 per cent of all businesses in the region qualify for compensation.

“This is one opportunity that should not be overlooked as ‘too good to be true’,” wrote two accountants who advise on claims.

Another law firm cites the example of a Florida bicycle retailer, which saw a rise in revenues of more than $500,000 in 2010 compared with 2009, but was still able to file a claim for almost $1m in compensation.

For BP, the rate at which those claims for business economic losses are being paid is a sign that Patrick Juneau, the independent claims administrator, is misinterpreting the settlement in a way that will cost it billions of dollars unless he is stopped.

The New Orleans court that is trying the civil case for damages resulting from the 2010 Deepwater Horizon disaster will on Friday hear arguments over BP’s call for an injunction.

BP wants to stop Mr Juneau making any more of what it describes as “irrational awards” for “fictitious” business losses, to give time for a full legal argument over how the settlement should be interpreted.

While the trial still has many more months to run, the decision made by Judge Carl Barbier will have a material impact on the final cost of the spill to BP.

As of Thursday, 40,685 claims for business economic losses had been submitted to Mr Juneau, and he had made awards to 5,964 of them, at an average of $233,000 each. Construction companies, agricultural businesses and law firms have received some of the largest payouts.

Business loss awards totalling $1.39bn are more than half the $2.67bn awarded under the settlement so far, and almost double the $780m in accepted claims from the seafood industry.

Alligator farm bites back in claims fight

As BP fights to limit the compensation it must pay over its 2010 oil spill in the Gulf of Mexico, Wall’s Gator Farm has become a symbolic battleground, writes Ed Crooks.

The farm, about 40 miles northwest of New Orleans, sells top-quality alligator skins to luxury goods companies around the world, particularly for watchstraps. It was hit hard by the global recession as the price of skins slumped, and in 2008-09 it lost an average of $289,000 per year, according to a court filing by BP. In 2010, though, it rebounded to a profit of $1.565m.

In spite of having had such an excellent year it still filed a claim under the settlement agreed last year by BP to compensate businesses and individuals hurt by the spill. Patrick Juneau, the independent claims administrator, awarded it $1.2m.

BP sees that decision as a prime example of the “irrational awards” that it is trying to stop, and in a court filing last month it put Wall’s on a 24-page list of questionable compensation decisions. However, lawyers representing the claimants argue that the award was less than the farm’s real losses.

When Louisiana state authorities opened river gates to flood the coastal marshes in an attempt to hold back the encroaching oil, the alligator breeding grounds where farmers gather eggs suffered “devastating” damage, according to a court affidavit from a consultant to the farm. In the summer of 2010 the number of eggs available was “drastically reduced”.

That affected revenues in the next couple of years, because alligators take about 10-16 months to reach the right size – about a foot across – to be killed and skinned. So although 2010 profits were good, the farm took a hit of about $2m in 20011-12, for which it would be partially compensated.

As the plaintiffs’ lawyers see it, the case helps show why BP’s allegations of fictitious losses are, as they put it, “baseless and self-serving”.

The number of business claims is rising fast. More than 4,000 new claim forms have been submitted since early March, and businesses still have a year left to file their claims before the deadline of April 2014.

Given the size of the area covered by the settlement – which stretches more than 400 miles inland from the gulf coast – and the opportunities for businesses, and for lawyers who can take up to 25 per cent of awards, many more claims could still be filed.

An analysis of claims data for BP shows that since last year the share of new filings coming from the construction, agriculture and professional services industries in zones of the affected area farther away from the coast have been rising, while the share coming from hotels, restaurants, retailers and real estate firms closest to the areas where the oil hit has been falling.

About 80 per cent of new filings are from claimants who did not seek compensation from BP’s previous fund, the Gulf Coast Claims Facility.

It is already clear that the total cost of the settlement will be significantly more than the $7.8bn estimate BP made last year. How far it overshoots that figure will depend on the outcome of Friday’s hearing.

BP argues that Mr Juneau’s “misinterpretation” of the settlement is based on his use of cash flows to calculate losses, rather than looking at the underlying economic reality.

Companies with lumpy cash payments and receipts have been able to cherry-pick the best possible comparisons from before and during the spill, to maximise their qualifying losses.

The lawyers representing businesses and individuals who sued for damages over the spill argue that looking at cash flows is the only “objective” way to calculate losses, as opposed to BP’s call for “subjective” assessments of economic reality.

BP’s attempt to change Mr Juneau’s methodology has already been rejected three times: first by Mr Juneau himself, and then twice by the court.

The plaintiffs’ lawyers describe its latest request for an injunction as “an attempt to get a fourth bite at the apple”, and say BP just made a mistake in its assessment of how much the settlement would cost.

If BP fails again, it can continue to fight. But without the injunction, Mr Juneau – who is also defending his interpretation in court – will carry on making payments based on his view.

In its court filing last month, BP said Mr Juneau’s implementation of the agreement “simply is not the bargain that the parties negotiated or this court approved”.

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