Anadarko May Use Arbitration to Resolve BP Oil-Spill Dispute

Anadarko Petroleum Corp. may resolve a dispute with BP Plc over who should pay for the biggest oil spill in U.S. history through a private proceeding not accessible to the public.

BP says Anadarko, as a partner with a 25 percent stake in the leaking Gulf of Mexico well, should pay its share of the costs associated with the disaster. Anadarko said June 18 that BP should pay the full tab because of the reckless way it drilled the well. In a statement, the smaller company, based in The Woodlands, Texas, said BP’s decisions on the well “likely represent gross negligence or willful misconduct.”

The partnership agreement on the well includes a provision that requires the companies to resolve disputes involving more than $500,000 through a binding arbitration process, according to a regulatory filing today from Anadarko.

“On the face of it, it would seem that this would be headed toward arbitration, not litigation,” said Jeff Rensberger, a professor of law who specializes in civil litigation at the South Texas College of Law in Houston. “Generally before an arbitrator, you get a judgment quicker and it is less expensive to do.”

John Christiansen, an Anadarko spokesman, declined to answer questions about the agreement. “We are assessing our contractual remedies,” he said in an e-mail.

Photographer: Derick E. Hingle/Bloomberg

Smoke billows from controlled burns of oil on the surface of the water near the site of the BP Plc Deepwater Horizon oil spill on June 19, 2010. Close

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Photographer: Derick E. Hingle/Bloomberg

Smoke billows from controlled burns of oil on the surface of the water near the site of the BP Plc Deepwater Horizon oil spill on June 19, 2010.

Robert Wine, a BP spokesman, declined to comment on potential legal or arbitration proceedings.

Different Conclusion

Since the partnership agreement appears to require arbitration instead of resolving the dispute through litigation, the issue may reach a different conclusion from other ongoing investigations, JPMorgan Chase & Co. said today in a note to clients.

“The context and arbitrators involved in the arbitration process likely would be different than those involved with the ongoing investigations, so that process could lead to a different conclusion than that from any ongoing investigations,” said JPMorgan, which has an “overweight” rating on Anadarko shares.

As much as 60,000 barrels of oil a day is pouring from the well, according to a government estimate. The leak was triggered by an April 20 explosion on a drilling rig leased to BP by Transocean Ltd. Spill costs may climb to as much as $50.8 billion if the well is capped at the end of August, according to a June 16 research note from ClearView Energy Partners LLC, a Washington-based policy analysis firm.

Mitsui Oil Exploration Co., which is 70 percent-owned by Japan’s second-biggest trading house, Mitsui & Co., has a 10 percent stake in the well. BP owns 65 percent.

Notice of Dispute

Once a notice of dispute is delivered, each party is to appoint within 10 days a management representative who can settle the dispute, according to the agreement filed today by Anadarko. If the representatives are unable to resolve the dispute after an allotted period, either party can initiate arbitration proceedings.

Each side will choose an arbitrator, and those arbitrators will select the last member of their three-member panel, or ask the American Arbitration Association to appoint the third member.

“The panel shall actively manage the proceedings so as to make the proceedings expeditious, economical, and less burdensome and adversarial than litigation,” the parties state in the agreement. The process is confidential.

Confidential Process

“Probably both of them would be happy to have this a little bit out of the limelight, as opposed to yet another high- profile, bad publicity moment for them,” said Rensberger, the law professor. Rensberger said it’s also possible that BP and Anadarko could reach a settlement.

The agreement calls for the panel to issue a final decision in writing within 60 days of the end of arbitration hearing presentations, or a longer period as agreed to by the parties. Either side can ask the panel to modify the award.

The agreement requires court-approval of the award.

BP Chief Executive Officer Tony Hayward said in a June 18 statement that his company expects other parties that may have responsibility for costs and liabilities to meet their obligations.

BP said the co-owners of the well have also filed documents with the U.S. government certifying that each would be “jointly and severally liable” along with any other responsible parties for oil-spill removal costs and damages in accordance with the Oil Pollution Act of 1990.

Preventable Disaster

Anadarko CEO Jim Hackett said in a June 18 statement that evidence shows the Gulf disaster was preventable and the result of BP’s “reckless decisions and actions.” The company said BP is responsible for the cost of damages in such a situation.

Anadarko rose 88 cents, or 2.1 percent, to $43.45 at 4:15 p.m. in New York trading. BP’s American depositary receipts dropped $1.43, or 4.5 percent, $30.33.

To contact the reporter on this story: Edward Klump in Houston at eklump@bloomberg.net.

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