BP Plc may not reach a settlement over civil claims from the 2010 Gulf of Mexico oil spill before a trial this month, analysts said, as U.S. states demand an additional $34 billion in damages.
Louisiana, Alabama, Mississippi and Florida are suing for economic and property damage under the Oil Pollution Act as a result of the spill, the worst in U.S. history, BP said in an earnings statement yesterday. While Chief Executive Officer Bob Dudley declined to comment on the state of negotiations with the federal government for civil fines, he said there wasn’t much time left before the start of the trial on Feb. 25.
The new claims from the Gulf states over the leak at the Macondo well exceed the amount BP provisioned for in its $42.2 billion estimate of the spill’s cost. In the New Orleans trial later this month, the Department of Justice is seeking fines under the Clean Water Act that could reach as much as $20 billion. The states’ claims aren’t included in the trial.
“The CEO gave the clear impression that the company did not now believe it would agree to a settlement before the Macondo trial re-commences,” said Iain Reid, an analyst at Jefferies & Co. in London. “The key risk for the stock remains the magnitude and timing of the final Macondo settlement.”
BP’s credit default swaps rose the most since 2011 today, climbing 10.5 basis points to 74. The rate to insure BP bonds against default is the highest since Nov. 30. BP fell 0.6 percent to 465.75 pence in London. The stock slid 7.8 percent last year.
“The additional $34 billion of claims filed against BP by four U.S. states provides another hurdle,” Fitch Ratings said today. Still, the final cost probably won’t “be enough to interfere with BP’s positive medium-term credit trajectory.”
BP said the states’ claims are based on “seriously flawed” methodologies and that if they proceed to trial, “BP will defend vigorously against them.”
“It doesn’t look like there will be a settlement” before the Feb. 25 trial, said Christine Tiscareno, an equity analyst at S&P Capital IQ in London. “The $34 billion figure seems to be a complete fabrication, but even if it’s less than that it could raise the cost of the spill by billions. The states would try to delay a settlement until after the Clean Water Act fines are settled to gain more leverage.”
The London-based company yesterday raised its estimate of the cost of its settlement a year ago with individuals and businesses from the states affected to $8.5 billion. In November, it reached a deal with the U.S. over criminal claims for about $4.5 billion.
BP last year completed its contributions to the $20 billion trust fund demanded by President Barack Obama in the wake of the spill, and about $10 billion of that has been paid out in claims. The company has spent about $33 billion in the aftermath of the spill so far.
For remaining claims, “we’ve said we would settle but it would have to be on reasonable terms,” Dudley said in a Bloomberg Television interview yesterday. “Our team is very prepared, we’re assuming the trial will go ahead.”
BP reported yesterday that fourth-quarter profit declined from a year earlier as it completed a $38 billion asset disposal program and production of oil and gas slipped.
The company raised its estimate of the cost of a settlement with most private claimants from $7.8 billion. The settlement, reached in March, resolves claims by most non-government parties for economic and environmental loss and physical injuries caused by the spill or cleanup.
“People will be perplexed as to why the states or the government wouldn’t be able to settle whereas individuals have been able to,” said Stuart Joyner, an analyst at Investec Securities Ltd. in London. “I still think it’s in everyone’s interest to settle before Feb. 25, for a reasonable amount.”
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