Findings of the second major investigation by the U.S. government into the 2010 Gulf of Mexico oil spill, may press BP into putting over $30 billion on the table to quickly settle its outstanding legal headaches.
The report, released on Wednesday, was even more damning of BP’s behaviour than the Presidential panel’s findings, which were issued in January and February. Both reports also highlighted mistakes made by BP’s contractors, driller Transocean and cement specialist Halliburton.
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Exxon Mobil fought claims related to the 1989 Valdez spill for almost 20 years, confident it could beat down the massive sums sought by, and initially awarded to, its opponents. In the end, it was largely successful.
But BP’s case is not seen to be as strong. The Valdez spill happened when a drunk captain guided his tanker onto a reef, while the official investigations put most of the blame for Macondo on BP management structures and decisions.
The man hearing the civil damages claims against BP, Judge Carl Barbier, has set a February trial date. BP is likely to make a “significant” offer soon afterwards, the insider said.
“I expect that early next year you will see the mother of all settlements,” another source close to the company said.
$30 billion settlement?
BP estimates the cost of the oil spill will end up at around $42 billion, including all environmental costs, compensation, legal claims and fines. So far, it has spent around $25 billion.
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Even before the conclusion of the highly critical official investigations, the government indicated it would press for the higher level of fines associated with gross negligence. However, the oil industry lobby’s growing strength in recent months, combined with the Obama administration’s wish to see the case resolved well before presidential elections in November 2012 could mean the DoJ accepts a discount to the maximum fine.
Nonetheless, a fine of over $10 billion is possible, lawyers say.
BP’s provision also excludes punitive damages but Judge Barbier has ruled these can be claimed, at least in relation to maritime-related cases, such as losses by fishermen, which Coon estimated at around $5 billion.
While recent awards have generally seen punitive damages awarded at levels equal to or less than actual economic damages, ZygmuntPlater, Professor at the Boston College Law school, said claimants could receive a multiple of any compensatory award because the latest government report linked the accident to BP’s cost-cutting efforts.
Even at a 1:1 punitive-to-economic damage ratio, BP may have to offer an additional $5 billion to cover punitive awards.
Combined, it appears BP may have to put over $30 billion on the table to cover the DoJ and civil claimant cases against it -- some $20 billion above what it has budgeted for.
Plater, however, said the risk of a court awarding much more meant that if BP could put all criminal and civil cases against it to rest for $40 billion, it should jump at the chance.
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Nonetheless, BP insiders say the company is not willing to offer any amount to win legal peace. A third source familiar with the company’s thinking said the period around February could represent a window for cutting deals, but that if claimants were not “reasonable,” the company could take the Exxon route and litigate for ten or 20 years.