After settling other claims regarding the 2010 oil spill in the Gulf of Mexico with authorities and civil plaintiffs, BP will go to court to defend against charges of gross negligence.
“We have always been open to settlements on reasonable terms, failing which we have always been prepared to defend our case at trial. Faced with demands that are excessive and not based on reality or the merits of the case, we are going to trial,” said Rupert Bondy, Group General Counsel of BP in a press release Feb. 19.
Immediately after the oil spill happened at one of BP’s rigs in the Gulf of Mexico, the company set up a $20 billion fund to deal with civil and criminal claims. It has already settled a criminal charge of $4 billion with the Federal government and spent $14.3 billion on direct response and cleanup. Another $9.9 billion have been set aside to pay local businesses, governments, and individuals.
However, BP failed to settle some civil claims with the Department of Justice regarding the Clean Water Act as well as claims by relevant U.S. States and other private parties. These parties are claiming the BP was grossly negligent in the disaster.
“Gross negligence is a very high bar that BP believes cannot be met in this case,” said Mr. Bondy, which why the company is going to court Feb. 25 in New Orleans to defend against these claims.
The Department of Justice on the other hand is convinced that the company violated accepted standards of conduct: “The United States is fully prepared for trial. We intend to prove that BP was grossly negligent and engaged in willful misconduct in causing the oil spill. We are seeking civil penalties and a judgment that BP and others are liable without limitation for removal costs and natural resource damages,” it said in a statement.
If the court confirms the charges, BP will be on the hook for a substantially larger amount of money. Sums to individual states and private parties depend on the damages caused on a case by case basis. The compensation for the spill under the Clean Water Act, however, depends on how many barrels of oil were spilt. The maximum penalty under gross negligence would be $4,300 per barrel of oil.
The government has estimated that 4.9 million barrels were spilled, resulting in a total possible maximum fine of $21 billion. BP, however, believes the U.S. government overestimated the spill amount.
“These issues are extremely complicated as a technical matter, and there is still further analysis to do,” said Mr. Bondy. “But it is clear, based on our analysis so far, that the government’s public estimate is simply wrong and overstated by at least 20 per cent.” In addition, BP claims that 810,000 barrels never entered the Gulf of Mexico and should therefore be deducted.
The total spill amount and per barrel fine will be determined at a trial in September. BP hopes that the per-barrel fine will be at the low end of the spectrum if the company is cleared of the gross negligence charges. “In practice, courts have historically awarded only a fraction of the statutory maximum penalty, generally choosing penalties that are far closer to zero than to the statutory maximum,” the company’s press release reads.
Analysts believe that final amount will be somewhere in between. “BP management has always insisted that it would settle with the Department of Justice on ‘fair and reasonable terms.’ … It appears to us that the window for reaching such a settlement is nearly closed. We currently include $13.2 billion for settlement across all outstanding civil and third party claims, including the Clean Water Act”, writes Barclays capital.
Citigroup thinks that this is a “highly litigious situation and there is a risk that fines and penalties could escalate above our forecast.”
Representatives of other plaintiffs were not immediately available for comment.
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