The April 2014 deadline for compensation claims against BP over its U.S. oil spill is almost certain to be extended, say both side of the legal settlement that governs payouts, possibly into 2015.
The last date for claims, part of the oil company’s settlement last year with individual and business claimants, was always potentially moveable, but like the open-ended nature of its cost that hit home earlier this year, the indefinite extendibility may not have been fully appreciated by long suffering investors, analysts say.
Extension might not make much difference to the total number and cost of relevant claims – $9.6 billion at the end of June and rising – but it would drag on the company’s hopes of leaving behind the wider Gulf of Mexico oil spill litigation saga that has forced it to sell a fifth of the company to fund a $42.4 billion bill so far.
BP long ago slipped from the second-placed status among global oil companies to a distant fourth as the costs of the 2010 oil spill shrank its earning power. In the five months since the settlement re-emerged as a thorn in its side, its shares have slipped by 4.5 percent, a similar performance to bigger rival Shell despite a price-supportive March launch of an $8 billion share buyback.
“I think there is little doubt that the escalation in the dispute over the fairness or otherwise of business claims has cast a cloud over BP’s share price performance in recent months,” said Neill Morton, analyst at Investec in London.
“So the prospect of the claims lasting for longer than is widely expected is not helpful. That said, one has to assume that there is a finite limit to the number of claimants, and that the April deadline will see the vast majority of them submitted.”
The terms of the 1,033-page PSC Settlement, signed last year by BP and the Plaintiff’s Steering Committee (PSC), show that the most widely reported deadline, April 22, 2014 is not a fixed date by which claims must be made. It is in fact one of two possible deadlines – the later of which will apply.
The other, now more realistic one, is set as six months after an ‘effective date’, an as yet unknown day by which all legal appeals about the settlement’s validity must have been resolved.
Since the settlement was signed, groups of rebel claimants have filed legal briefs against it. BP has also appealed against the way the settlement is being interpreted.
Lawyers say there is almost no chance these issues will be resolved by Oct. 22, two months from now, six months from April 22, and therefore the last date on which April 22 can be the applicable deadline.
So starting from Oct. 22, the actual deadline after which no more claims will be considered will always be at least six months away, either until all outstanding appeals are resolved, or until all parties agree a different deadline.
BP Chief Executive Bob Dudley told reporters on July 30 the deadline would probably move to a later date. BP declined to comment for this story.
Joe Rice, a lawyer who sits on the PSC, said this week that although his estimate could easily be out by months or years, “I say it will be at least the end of 2014 before the appeals process ends and ‘effective date’ can occur.”
That scenario would move the deadline well into 2015.
The 2010 rig explosion killed 11 workers. The mile (1.6 km)-deep Macondo oil well then poured over 4 million barrels of oil into the Gulf of Mexico, fouling coastlines from Texas to Florida.
BP is saying the PSC settlement is being misinterpreted to pay out on “fictitious” claims. It awaits an appeal court ruling after a one-day hearing on July 8. If the company loses, it is expected to appeal to the Supreme Court.
Groups of rebel claimants have meanwhile also challenged the settlement, arguing it is not favourable enough to them.
The $1.4 billion increase in BP’s PSC Settlement bill in the second quarter to June was equivalent to more than half its net profit for the period. Having almost emptied a fund set up to pay for it and other costs, the company has said it will take future costs out of profits.
The business and personal compensation claims the settlement covers are just one part of the legal process.
This year, as the bill for the United States’ worst offshore environmental disaster has mounted and efforts to reduce investor uncertainty through negotiation have failed, BP has hardened its legal stance.
Dudley has said BP is “digging in” and will “play it long” for the sake of shareholders, who have already lost $5 billion a year worth of cash flow after asset sales to pay for clean-up, compensation, fines and other costs.
BP has settled criminal charges via a guilty plea and fine, but this year it gave up attempts to settle on the civil charges that could add tens of billions more to its bill.
The second phase of a civil trial in New Orleans under judge Carl Barbier is due to start next month, with federal charges brought under the Clean Water Act and damage claims sought by Gulf Coast states at stake.
In July, BP’s case in that trial was seen by legal experts to have won an edge when Halliburton, the company that did the cement work on the Macondo well, pleaded guilty to destroying evidence that might support BP’s case for being no more than negligent, as opposed to grossly negligent.
But BP has also been banned from new federal government contracts because of its criminal status. It has launched a legal challenge to that ban as well.
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