Posted on 11 Mar 2013 by Neilson
BP PLC now expects to pay more than previously anticipated in compensation for private economic and property damage stemming from the Deepwater Horizon disaster in the Gulf of Mexico, according to the company's annual report.
This is because average payments for business economic loss claims so far have been higher than anticipated, the company said. BP said this means it can no longer give a reliable estimate for the total cost of the settlement it agreed last year with the plaintiffs' steering committee--a group representing individuals with economic, property or medical damage claims--other than to say it will be significantly higher than $7.7 billion.
In a speech earlier this week BP Chief Executive Bob Dudley said the company has spent over $24 billion in response, including clean-up and restoration costs and in payments on claims made by individuals, businesses and governments for the 2010 disaster. This latest escalation in the cost of the disaster, which killed 11 men and triggered the worst offshore oil spill in U.S. history, comes as the company is embroiled in a civil trial to determine environmental fines that could total as much as $17.6 billion.
BP has spent or provisioned more than $40 billion for the Deepwater Horizon disaster, Mr. Dudley added.
BP said the final cost of the PSC settlement is likely to be higher than $7.7 billion, which is the company's current estimate of total payments under the deal, excluding future claims for business economic loss whose size cannot now be determined.
In February BP revised up the cost of the PSC settlement to $8.5 billion--already an increase from the original estimated cost of $7.8 billion last year--but it has now withdrawn that guidance. The company said it would issue fresh guidance for the higher costs when it is able to calculate a reliable new estimate.
BP said it can't give an estimate for the final total of compensation payments to individuals and businesses. " Management has concluded that no reliable estimate can be made of any business economic loss claims not yet received or processed," BP said.
BP said costs were higher because the administrator of the compensation fund was using a more generous interpretation of the payout agreement, resulting in higher number and value of awards than BP had assumed in their initial estimate.
This week a U.S. federal court affirmed the administrator's interpretation of the economic and property damages settlement agreement. BP said it disagrees with the ruling and will challenge it.
However, the U.K.-listed oil giant said that even if it is successful in appealing the court's ruling, the total cost of the settlement agreement will still exceed $7.7 billion. "If BP is not successful in its challenge to the court's ruling, a further significant increase to the total estimated cost of the settlement will be required," BP said.
The company is now in the second week of a civil trial in New Orleans to apportion blame for the 2010 accident. A second trial, scheduled for the fall, will determine how much oil leaked into the Gulf of Mexico. The two trials will determine the size of the fines BP could face under the U.S. Clean Water Act, which could total as much as $17.6 billion
BP has said these fines should be a maximum of $3.4 billion.