BP Must Finally Pay Up
The trial over the worst U.S. offshore oil spill is set to start Monday in New Orleans before a federal judge and without a jury. Few expect the case, seen lasting several months, will be decided by the judge.
An eleventh-hour settlement this weekend is a possibility, but legal experts expect a resolution, at least with the U.S. Department of Justice, in the coming months. Early testimony is likely to set the tone for any settlement talks, depending on how damaging the evidence is, they said.
“This is a game of corporate chicken,” said John Zavitsanos, a Houston civil litigator. “We have tangled with BP often, and they blink.”
Joining well owner BP Plc in Judge Carl Barbier’s courtroom will be rig owner Transocean Ltd and well cement services provider Halliburton Co.
Lined up against them will be the Justice Department, several Gulf Coast states and other plaintiffs.
BP and Transocean declined to comment on the specifics of the upcoming trial. Halliburton was not immediately available for comment.
BP has a history of settling civil cases before or during trial. Four trials began over the 2005 explosion at its Texas City refinery that killed 15 people. All were settled. Payouts totaled $3.1 billion. BP has since sold the refinery.
The stakes are higher this time, though. The Macondo well explosion and spill on April 20, 2010 affected five state coastlines, prompted a six-month ban on oil and gas drilling in the Gulf and disrupted the livelihoods of fishermen, hoteliers and others. And once a trial gets under way, a new dynamic can take hold.
“If the first couple of days are good for the plaintiffs or good for the defendants, that could shift. Once the first pitch is thrown, those odds could change,” said Anthony Sabino, a business law professor at St. John’s University School of Law.
Just ahead of the trial, BP won agreement from the Justice Department to exclude 810,000 barrels from the total spilt barrels estimate, but BP says the estimate is still too high. It also wants “efforts to do the right thing” afterwards taken into account and has earmarked only $3.5 billion for Clean Water Act payments, compared with its potential maximum liability of $17.5 billion.
A BP settlement with the Justice Department over such a large liability could lead to another delay of a trial that has already been postponed.
“With the federal government out of it, he (Barbier) might well postpone … particularly if the states indicated to him that they were continuing to talk,” said Ed Sherman of Tulane University Law School in New Orleans.
BP has committed to pay $8.5 billion to plaintiffs in a separate settlement, having already paid out $9 billion in other claims. Last year it also settled 14 criminal charges with a guilty plea and a record $4 billion in fines and penalties.
The civil claims to be covered next week could surpass these, and the trial’s significance to BP was evident at a February 5 news conference in London. When Chief Executive Bob Dudley said the company would vigorously defend itself, he repeatedly looked toward his top in-house lawyer, Rupert Bondy, for moral support.
BP has repeatedly said it will settle on “reasonable terms,” but Bondy drew a line in the sand this week, saying the British company now goes to trial “faced with demands that are excessive and not based on reality.”
Its spill bill is already impressive: Accounting provisions total $42 billion – about 30 percent of its stock market value. It has sold assets worth $38 billion to finance compensation, clean-ups and fines. It has paid, or committed to pay, $37 billion of this. The actions have sliced $5 billion a year, or 14 percent, off its cash flow – a basic money-making measure.
And there is more to come. That is why, even on forward measures of earning power, a shrunken BP still lags its peers.
If BP is found “grossly negligent” – a key question for the trial – its fine under the U.S. Clean Water Act could be as high as $17.5 billion based on a total of 4.1 million barrels spilled and a maximum fine of $4,300 a barrel.
It could also be much lower, at a maximum $1,100 per barrel, or $4.5 billion, if BP’s claim that it was “no more than negligent” is proved.
Aside from the Clean Water Act, two other claim groups come under the jurisdiction of Barbier, a federal judge for the Eastern District of Louisiana. Both are harder to quantify.
Economic damage claims totaling $34 billion have been made by Gulf Coast states including Louisiana and Alabama. BP has said these are excessive, and that its clean-up spending had a positive economic impact.
A third set of claims, for natural resources damage, has not even been quantified yet.