Last updated: March 7, 2013 9:26 pm

BP warns of higher settlement costs

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The cost of BP’s court settlement with businesses and individuals affected by its 2010 Gulf of Mexico oil spill will be “significantly higher” than $7.7bn, the company warned, as payments being made under the deal come in higher than expected.

The company also said the implementation of the settlement by the lawyer administering the claims could result in the final bill increasing even further.

BP has already paid about $14bn in clean-up costs and $10bn in compensation over the Deepwater Horizon disaster, and is facing additional penalties and damages in the civil trial now under way in New Orleans.

In notes to the annual report this week, BP said it expected most types of private claims under the settlement to cost it $7.7bn, but thousands of claims for businesses’ economic losses that have not yet been processed would add to that bill.

On trends so far, those additional payments could run into the billions of dollars. Of about 36,000 claims for business economic loss that have come into the administrator, about 5,000 have been approved and 3,600 denied, withdrawn or closed.

The average offer for an accepted business loss claim is $236,000. Its original estimate of the total cost of the deal, agreed a year ago with lawyers for private sector plaintiffs, was $7.8bn.

It added in the report that a court ruling in New Orleans, which went against the company on Tuesday, meant that there would be a “further significant increase to the total estimated cost of the settlement” unless it could overturn that judgment.

The company argued that decisions on claims made by Patrick Juneau, the independent Louisiana lawyer administering the settlement agreement, were giving “unjustified windfall payments” to many of the businesses over their losses claimed as result of the spill.

When it reported full-year results in February, the company said the estimated cost had been revised up to $8.5bn, as both administrative expenses and claims payments were running at a higher rate than expected.

A month later, it has revised its view again, saying it is no longer possible to give an estimate of the final cost.

Under BP’s agreement with the lawyers for the private sector plaintiffs, compensation for losses is set by comparing earnings before and after the spill. Mr Juneau has been making payment awards based on comparisons of revenues and costs that are more favourable to claimants than BP had expected, and the court ruling on Tuesday upheld his interpretation.

BP said it would continue to challenge Mr Juneau’s implementation of the settlement “using all legal avenues available”.

In the civil liability trial in New Orleans, BP faces claims from the US federal and state governments, as well as from private sector plaintiffs who either opted out of the settlement, or are not eligible, if for instance they are outside the gulf region.

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