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BP Sparring With Partners on Well Costs

Source: NY Times


Posted on 23 Jul 2010

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Newly released documents show intensified sparring over liability among the partners in the blown-out Gulf of Mexico well.

Three companies own the well: BP has a 65 percent share, the Anadarko Petroleum Corporation has 25 percent, and a subsidiary of the Mitsui Oil Exploration Corporation known as MOEX Offshore 2007 has 10 percent. Transocean was hired by BP to drill the well, but does not own a stake.

The joint operating agreement among the three companies states that their share of liability corresponds to the level of ownership. BP has billed the two smaller companies for their share of the billions of dollars it has spent so far, but the companies have declined to pay.

Newly released invoices sent by BP on July 2 demand $919,395,530.30 from Anadarko and $367,819,365.75 from MOEX, “due 30 days upon receipt.”

The documents were obtained by the Senate subcommittee on federal financial management. The panel will hold a hearing on Thursday with the chief executives of Anadarko and MOEX, as well as Kenneth R. Feinberg, who runs the $20 billion fund created by BP to pay spill-related claims.

In a letter to Senator Thomas R. Carper, Democrat of Delaware, who is chairman of the subcommittee, a lawyer for BP stated that the company even expected reimbursement “for their respective shares” of the $20 billion fund, though it was created through a private agreement between BP and the White House.

In a July 12 letter, MOEX told BP it was deferring payment “in light of the numerous investigations that are currently taking place to determine the facts and circumstances surrounding the incident” and “the many pending lawsuits.”

Anadarko’s letter, dated July 7, referred to its earlier statements that BP might have engaged in “gross negligence” and “willful misconduct.” Those terms, if proved in arbitration or court, might allow Anadarko to escape liability.

BP, in responses to both companies, cited the wording of the “unambiguously binding” agreement among the companies, which states that the partners must pay even if “a party believes that such charges are incorrect,” and that the agreement calls for disputes to be resolved “as soon as practical.” Failure to pay “shall constitute an event of default under the operating agreement,” the company stated.

BP did not return calls for comment. A spokesman for MOEX said the company was “undertaking a very careful and independent review of BP’s claims for reimbursement.”

An Anadarko spokesman declined to comment except to refer to the agreement, which places liability solely on the operating partner in case of gross negligence or willful misconduct.

John C. Coffee Jr., a professor at the Columbia Law School, called the heated language of the letters “posturing.”

Professor Coffee noted that the case was likely to end in private arbitration, and that the penalty for Anadarko and MOEX not paying was that they would probably forfeit their interest in the well — “which all now recognize has liabilities that dwarf their revenues.”

Prof. Joseph A. Grundfest, an expert in business law at Stanford Law School, said Anadarko and MOEX might also be making a simple calculation: that if there is a chance they could escape liability, they can afford to take a wait-and-see approach.

“There seems to be little downside to saying ‘no thank you’ to BP,” Professor Grundfest said.

The well, which blew out on April 20, has caused a rush of litigation. Nearly 330 cases against BP were filed in federal court alone from April to June of this year, nearly 10 times more cases than were filed in the previous quarter, according to Briefcase Analytics, a business intelligence firm that tracks legal issues. The cases were filed in 47 states, the District of Columbia, Puerto Rico and Guam.


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