Tens of billions of dollars will be at stake when BP heads to a US court this month to determine how much it owes for the massive Gulf of Mexico oil spill and how much it can shift to subcontractors.
Several government probes have castigated BP, rig operator Transocean and Halliburton — which was responsible for the runaway well’s faulty cement job — for cutting corners and missing warning signs that could have prevented the disaster.
The April 20, 2010, explosion on the BP-leased Deepwater Horizon drilling rig killed 11 workers, polluted beaches in five US states and devastated the Gulf Coast’s tourism and fishing industries.
It is up to a federal judge to determine whether the deadly missteps constitute gross negligence, how much of the blame rests with each party, and whether punitive damages should be imposed.
Judge Carl Barbier — an expert in maritime law — has consolidated hundreds of spill-related lawsuits into a single case set to begin on Feb 27 in New Orleans.
BP — which last week reported a $23.9 billion profit for 2011 — said it is working to reach a settlement with the US government over a host of civil fines and possible criminal charges.
“We are prepared to settle if we can do so on fair and reasonable terms, but equally, if this is not possible, we are preparing vigorously for trial,” chief executive Bob Dudley said after the profit report.
That settlement will likely come in at a record $20bn to $25bn, Morgan Stanley estimated in a recent research note.
That would significantly exceed the $12bn provision BP set aside for those penalties as part of the $41bn charge it posted in 2010 to cover spill-related costs, analyst Martijn Rats wrote.
“There’s only one path for BP to take — blame it on as many other people as possible and make sure it’s not cast as gross negligence,” said Blaine LeCesne, a law professor at Loyola University in New Orleans.
“That way, they may be able to limit their cost to $30bn or $40bn as opposed to $100bn,” he said
BP will also still have to deal with thousands of claims from fishermen, coastal businesses, state and local governments, and others able to prove they suffered economic damage from the spill.
“The big fear of course is punitive damages,” said Ed Sherman, a law professor at Tulane University.
BP would face a much bigger financial risk if the case was being handled by a jury, Sherman said, but Judge Barbier could still impose punitive damages of anywhere from one to five times the economic damages caused by the spill.
While any punitive damages will likely come in at the lower end of the range, it could still add tens of billions to the final tally.
BP has already paid over $6bn to more than 220,000 claimants who chose to settle with a special fund set up to provide emergency payments and a faster route to reimbursement.
The massive cleanup and containment effort cost BP $13.6bn.
It has been able to recover some of the costs from its well partners and subcontractors but warned in its quarterly report that the final tally for the spill is “subject to significant uncertainty”.
The first step of what is expected to be a years-long legal battle will be for Barbier to determine how to apportion fault for the disaster and whether the missteps constitute gross negligence.
Barbier has already ruled that Halliburton and Transocean will be responsible for covering their share of government fines and punitive damages.
BP remains contractually obliged to cover their share of “compensatory claims” — even if gross negligence is found — unless it is able to prove its allegations that Halliburton fraudulently concealed problems with its well cementing job, the judge ruled.
The next, and far lengthier phase, will deal with assessing economic damages.
It took 87 days to cap BP’s runaway well 1,500 metres below the surface, which spewed some 4.9 million barrels (206 million gallons) of oil into the Gulf of Mexico.
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