Oil giant BP has won a major court victory in the US that will limit the amount of compensation it has to pay following the Gulf of Mexico oil spill in 2010.
The FTSE 100 company has been appealing against the process by which businesses have been able to make claims in the wake of the disaster.
With lawyers in the area advertising for business by claiming “there is no need to provide proof that BP caused your loss”, it believes it has already been forced to hand over $500 million to firms who suffered no actual losses from the tragedy, which resulted in 11 deaths.
BP’s complaint against the formula worked out by settlement administrator Patrick Juneau was upheld by the New Orleans Court of Appeal last night, which ruled that a district court had “erred” by approving the methods earlier in the year.
BP originally estimated that the Gulf of Mexico spill would cost it $7.8 billion in compensation although this increased to $9.6 billion in July.
It has so far paid out $3.78 billion to claimants, according to Juneau’s claims website. The company said today that the compensation process had “veered off course”. It added: “If properly implemented by the district court, the Fifth Circuit’s order will help return the settlement to its original, intended and lawful function — the compensation of claimants who sustained actual losses that are traceable to the Deepwater Horizon accident.”
Despite the ruling, shares in the company dropped 0.75p to 474.55p, with most investors and analysts believing there is still some way to go until the fallout of the disaster is resolved.
BP is still waiting for the outcome of a separate civil case in New Orleans, covering local and state government economic restoration claims and damage to natural resources.
The first part of the trial, which started in February, focused on the causes of the 2010 accident as well as who should be held responsible. The second part concentrated on how many barrels of oil were spilled into the Gulf.
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The third part, which will start next year, will determine how much BP and related parties could have to pay under the clean water act.
The outcome of this ongoing case could result in the company having to pay out billions more in costs if BP is found to have been grossly negligent.
Comment: Dudley right to staunch cash flow
BP’s Deepwater Horizon spill long ago moved from staunching the flow of oil into the Gulf of Mexico to staunching the flow of cash from its compensation fund.
The oil giant has been upfront about paying its dues for this terrible accident, but there is evidence that it is now being taken advantage of.
US lawyers have been advertising for clients to claim from BP in the same way that an industry has grown up around opportunistic payment protection insurance cold callers.
Although today’s market reaction was muted, this suspension in some payments is a step in the right direction for Bob Dudley. BP’s boss has made great strides to reshape the company, in part selling assets to fund its American liabilities.
But shareholders cannot see beyond the issue of spill costs, which explains why BP shares have traded in a narrow band of between 400p and 500p since the accident happened in 2010.
James Ashton
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