BP battles for billions in new Gulf trial phase

Reuters BP battles for billions in new Gulf trial phase Fri, Sep 27 05:17 AM EDT image By Terry Wade and Andrew Callus HOUSTON/LONDON (Reuters) - BP will battle to hold down fines that could hit $18 billion in a new phase of the Gulf of Mexico trial that will rule on how much oil it spilled in 2010 and judge its efforts to plug its well. Starting on Monday in New Orleans, this second of three phases of a trial determining responsibilities for the worst marine pollution ever seen in the United States, could - in the worst outcome for the British firm - land BP with a bill five times greater than the $3.5 billion it has set aside for fines. Its annualized earnings, based on last quarter, are running at about $17 billion. A first phase, which wrapped up in April, looked at dividing blame among BP and its contractors, Transocean Ltd and Halliburton Co, for the 2010 Macondo disaster which left 11 men dead and huge stretches of sea and coast fouled with oil. Expected to last a month, this second part of the process will be crucial for shareholders in estimating some of the extra cash BP could end up paying out beyond the $42.4 billion it has so far made provision for in its accounts to cover the clean-up, compensation and fines. U.S. District Court Judge Carl Barbier, renowned for setting a fast pace, is expected to announce his findings and penalties after a third phase of the trial, likely next year. Much depends on how the court rules on a dispute between BP and the U.S. government over how many million barrels of oil were actually spilled, and on just how culpable BP was in failing to stop it for 87 days. BP shares have lost a third of their value since the disaster, as the company hived off $39 billion of assets that generated $5 billion a year in cashflow - or about a fifth of its earning power - before 2010. Once the world's second ranked oil company by asset value, it is now the fifth.

"Until the court case is over, the potential upside on asset value is a waste of time," said Malcolm Graham-Wood, an analyst at investment bank VSA Capital. "Other investments in the sector offer greater certainty of operating results, vastly better management - and a better ability to sleep at night."

POLLUTION FINES BP says 3.26 million barrels leaked from the well during the nearly three months it took to cap the blowout at the Deepwater Horizon rig; the U.S. government says it was 4.9 million. Both those totals include 810,000 barrels that were collected during clean-up and which Barbier has agreed to exclude.

This month, BP's lawyers questioned the government's figure. "United States experts employ unproven methods that require significant assumptions and extrapolations in lieu of ... available data and other evidence," they said in a filing.

They have also sought to convince Barbier that if the company is to be found guilty, it should amount to only "negligence" and not "gross negligence" - a crucial distinction since the latter carries much higher maximum penalties. Under the Clean Water Act, negligence can be punished with a maximum fine of $1,100 for each barrel of oil spilled; a gross negligence verdict carries a potential $4,300 per barrel fine. If the court judged the spill to have been 4.09 million barrels - the government estimate less oil recovered - the price of negligence could reach $4.5 billion. Gross negligence, in the costliest scenario, could run to $17.6 billion. BP has only $3.5 billion set aside in its provision - almost all of which is already accounted for by this and other costs. Even after the Clean Water Act fines are set, BP may face other bills from a lengthy Natural Resources Damage Assessment - which could require BP to carry out or fund environmental restoration work in the Gulf - as well as other claims. This week, researchers from University of Nevada-Reno, Texas A&M and the National Oceanic and Atmospheric Administration said in the online scientific journal PLoS One that the muddy deep-sea ecosystem could take decades to recover. Jason Ryan, a BP press officer, criticized that study: "The paper provides no data to support a claim that it could take decades for these deep sea species to recover," he said. "In fact, the researchers acknowledge that little is known about recovery rates of these communities following an event such as this." CHALLENGES, ADVERTS Another part of the $42.4 billion charge includes a settlement agreement reached last year with the Plaintiffs' Steering Committee (PSC) - an uncapped system funded by BP that pays out money to tens of thousands of people and business which filed claims saying the spill hurt their livelihoods. The cost of that deal was estimated at $7.8 billion but BP has revised it upwards to $9.6 billion and has complained that the settlement administrator is paying out far more generously than he was meant to in compensating the likes of fishermen, hoteliers and others making a living along the Gulf coast. BP has filed challenges to the settlement both to Barbier and in a higher court - so far without success. Once Britain's biggest company and still a major contributor to institutional dividend income, it has also filed a lawsuit against the U.S. Environmental Protection Agency. The EPA has banned it from bidding for new federal fuel contracts or new Gulf of Mexico drilling licences. Despite the Macondo spill, BP is still the biggest single holder of licences in the Gulf. The EPA imposed the measure a year ago after BP pleaded guilty to criminal charges, citing the company's "lack of business integrity" after the fatal accident. BP has filed more than a dozen motions and appeals all told. "We are digging in and are well prepared for the long haul on legal matters," Chief Executive Bob Dudley said in July. A flurry of filings by the company - along with newspaper adverts criticizing the high costs of the settlement agreement and television commercials urging tourists to return to the Gulf coast for fishing and birdwatching have irked environmentalists. "They are softening the beachheads for appeals down the road," said David Yarnold, president of the National Audubon Society, a wildlife conservation group. "And trying to buy American public opinion and avoid paying for what they broke." He said it would take decades for scientists to fully gauge the impact of the spill on fish and wildlife. "BP's happy-talk commercials make it sound like it's all taken care of," Yarnold said. "And it's not." A BP representative did not comment when asked about its legal strategy and ads. The case is In re: Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico, on April 20, 2010, U.S. District Court, Eastern District of Louisiana, No. 10-md-02179. (Editing by Braden Reddall and Alastair Macdonald) ================ BP wins reprieve over Gulf spill payouts: U.S. appeals court Wed, Oct 02 23:04 PM EDT By Jonathan Stempel (Reuters) - BP Plc won a legal reprieve in its effort to force the administrator of a settlement related to the 2010 Gulf of Mexico oil spill to tighten standards in assessing claims, potentially sparing the oil company billions of dollars of extra costs. A divided 5th U.S. Circuit Court of Appeals in New Orleans on Wednesday directed U.S. District Judge Carl Barbier, who in March had approved administrator Patrick Juneau's evaluation methods, to take a fresh look at which claims are legitimate. The 5th Circuit also directed Barbier to halt payments on those claims that don't meet stricter standards. BP had agreed in 2012 to make payments to cover economic losses arising from the spill. But it complained that Juneau's payout formula has been too generous, and compensates people and businesses that were not harmed. That argument drew sympathy from Circuit Judge Edith Brown Clement, part of a 2-1 panel majority that sent the case back to Barbier, who also sits in New Orleans. "There is no need to secure peace with those with whom one is not at war," Clement wrote. "The district court had no authority to approve the settlement of a class that included members that had not sustained losses at all, or had sustained losses unrelated to the oil spill, as BP alleges," she added. "If the administrator is interpreting the settlement to include such claimants, the settlement is unlawful." BP originally projected that the settlement would cost $7.8 billion, but in July boosted its estimate to $9.6 billion. As of Wednesday, about $3.69 billion has been paid out, according to Juneau's claims website. (http://www.deepwaterhorizoneconomicsettlement.com/docs/statistics.pdf) The 5th Circuit said Barbier should issue a narrower injunction to allow recoveries by claimants with "actual injury" from the spill, and not punish BP and its shareholders by allowing potentially "hundreds of millions of dollars of unrecoverable awards."

Stephen Herman, a lawyer for some claimants, said in an email after Wednesday's decision: "We're pleased that the vast majority of class members will continue to be paid in a timely and expeditious manner. We look forward to working with the claims administrator and the court to determine the best way to get the affected claims processed and paid as soon as possible."

BP spokesman Geoff Morrell said the ruling affirms what BP has been saying since the beginning: claimants should not be paid for fictitious or wholly non-existent losses. "BP is extremely pleased with today's ruling... setting aside the claims administrator's interpretation of the business economic loss framework in the settlement agreement BP reached with the Plaintiffs' Steering Committee last year," Morrell said. The settlement was designed to compensate victims of the April 20, 2010 explosion of the Deepwater Horizon drilling rig and rupture of BP's Macondo oil well. The disaster killed 11 people and triggered the largest U.S. offshore oil spill. BP, which is based in London, has already incurred more than $42 billion of charges for clean-up costs, fines and compensation related to the spill. The 5th Circuit on Wednesday also upheld Barbier's dismissal of a BP lawsuit against Juneau. Meanwhile, the second phase of a trial before Barbier over the spill began on September 30. It focuses on how much oil was spilled and BP's effort to control the flow. The case is BP Exploration & Production Inc v. Deepwater Horizon Court-Supervised Settlement Program et al, 5th U.S. Circuit Court of Appeals, No. 13-30315. (Reporting by Jonathan Stempel in New York; additional reporting by Sakthi Prasad in Bangalore; Editing by Kenneth Maxwell) ===================