Anadarko, BP May Use Cheaper Arbitration Process to Resolve Clash on Spill

Anadarko Petroleum Corp. may address its dispute with BP Plc over who should pay for the biggest oil spill in U.S. history through a private proceeding intended to resolve the issue faster and more cheaply than litigation.

BP says Anadarko, which has a 25 percent stake in the leaking Gulf of Mexico well, should pay its share of the costs associated with the disaster. Anadarko said in a statement June 18 BP should pay the full tab because BP’s decisions on the well “likely represent gross negligence or willful misconduct.”

As much as 60,000 barrels of oil a day is pouring from the leak, according to a June 15 government estimate, some of which BP is capturing and diverting to ships on the surface. 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 yesterday 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, a spokesman for The Woodlands, Texas- based Anadarko, declined yesterday to answer questions about the agreement. “We are assessing our contractual remedies,” he said in an e-mail.

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

Different Conclusion

Since the partnership agreement appears to require arbitration, the issue may reach a different conclusion from other investigations that are under way, JPMorgan Chase & Co. said yesterday 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,” said JPMorgan, which has an “overweight” rating on Anadarko shares.

The leak was triggered by an April 20 explosion on a drilling rig leased to BP by Transocean Ltd. BP has spent $2 billion responding to the spill, it said in a statement yesterday. 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.

Notice of Dispute

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. A U.S. unit of Mitsui Oil Exploration is part of the same agreement as Anadarko and declined to comment. BP owns 65 percent of the well.

Once a notice of dispute is delivered, each party is to appoint a management representative, according to the agreement filed yesterday by Anadarko. If the representatives cannot settle the dispute, either party can initiate arbitration.

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

“With all the uncertainty hanging over all these companies here, arbitration has the advantage of being decided more quickly,” said Philip Weiss, an analyst with Argus Research in New York who has a “hold” rating on Anadarko and BP. “In some ways, a decision that I don’t like might be better than clouds of uncertainty hanging out here.”

Confidential Process

The agreement calls for the panel to issue a final decision in writing after presentations. Either side can ask to modify the decision. The agreement requires court approval of the award.

Arbitration clauses are becoming more common in commercial contracts, said Richard Frank, a visiting lecturer at the University of California, Davis, School of Law. He said Anadarko might prefer a public case rather than a confidential process given the negative coverage of BP.

“I think someone seeking to prove that BP was grossly negligent might be relatively more interested in pursuing that in court because they have an opportunity to get to a jury instead of a dispassionate arbitrator,” Frank said.

The companies may also choose to settle the case outside of court, he said.

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.

Preventable Disaster

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.

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 fell $1.75, or 4 percent, to $41.70 as of 4:01 p.m. in composite trading on the New York Stock Exchange. BP’s American depositary receipts dropped 65 cents, or 2.1 percent, to $29.68.

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

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