Businesses Won’t Have to Return BP Oil Spill Payouts

By JANET MCCONNAUGHEY and JONATHAN FAHEY | September 26, 2014

A U.S. judge has ruled that BP must stand by the agreement made with the companies it compensated for losses after the 2010 Gulf of Mexico oil spill despite the oil giant saying some claims were overestimated.

BP argued that a flawed funding formula enabled nearly 800 businesses to overestimate their spill-related claims.

BP is still facing a financial nightmare from America’s worst oil disaster, which began with an explosion that tore open the oil company’s Macondo well on the floor of the Gulf of Mexico, destroying the Deepwater Horizon drilling rig and killing 11 workers. As the spill defied containment efforts for nearly three months, fouling seafood grounds, coastal marshes and beaches, BP sought to restore its image and limit its liability by promising to compensate the victims.

Trying to force businesses to return that compensation could cost the London-based company some goodwill, but BP’s financial pressures are different now.

“In 2010 and 2011, BP was willing to cut any deal necessary with anyone to reduce its legal risk,” said Pavel Molchanov, an energy analyst for Raymond James. “Now the company is taking a more assertive approach.”

About 150 claimants should return a total of $185 million, and overpayments to the rest haven’t been calculated, BP attorney Kevin Downey argued.

U.S. District Judge Carl Barbier was not persuaded Wednesday, thwarting BP’s latest attempt to control potential liabilities now approaching $50 billion.

One construction company hundreds of miles (kilometers) from the coast received $13.2 million, but deserved $4.8 million at most, BP said. Another company selling “animals and animal skins” was overpaid about $14 million, and about 50 others shouldn’t have been paid at all, the company said.

The judge agreed weeks ago to change the compensation formula for any future payments, but ruled Wednesday that a deal is a deal when it comes to the money BP has already paid out. Under that deal, claimants agreed not to sue, and BP agreed that no future court action could change their payments.

“BP disagrees with today’s decision and will appeal it,” company spokesman Geoff Morrell said. “We asked the Court, as a matter of equity and fairness, to order the return of excessive payments.”

Barbier said he would rule later on the issue of compensation for cleanup workers whose chronic medical problems weren’t diagnosed until after the deal’s cutoff date of April 16, 2012. The settlement entitled cleanup workers with chronic conditions including rashes and breathing problems to receive up to $60,700 if the problems first surfaced within days of their cleanup work.

BP’s closing share price was $50.20 the day of the explosion, and fell to $22.80 in June 2010, before the well was capped. Shareholders returned after BP set aside $42 billion to cover its liabilities, reassured the financial damage was contained.

That’s no longer so clear: The judge’s ruling this month that BP showed gross negligence and willful misconduct added a new level of uncertainty around BP’s spill-related expenses, reducing its market value by $9 billion in a single day.

“That was not expected,” Molchanov said. “It added a big question mark.”

BP’s total potential liabilities now include up to $18 billion in fines and penalties that could be imposed for violating federal pollution laws, and more than $27 billion BP says it has already paid to restore the coast and settle damage claims.

The claims office said it has paid $4.1 billion to more than 50,700 people and businesses as of Wednesday, and it’s not done yet – the settlement fund is not capped.

BP’s stock fell another 21 cents Wednesday, closing at $45.51. The oil giant reported profits of $24 billion last year, but analysts have said it could be forced to sell assets to cover the fines.

(Fahey reported from New York.)

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