BP Pins Hope On The U.S. Supreme Court To Limit Settlement Costs
In a last-ditch attempt to limit its settlement costs, BP Plc. (NYSE:BP) plans to seek review of the U.S. Supreme Court regarding the recent Fifth Circuit appeals court ruling. BP requested for “en banc” review by all the active Fifth Circuit court judges after it was denied a permanent injunction on the settlement of business and economic loss claims not traceable to the oil spill earlier this year. The court rejected BP’s argument that the claims administrator is misinterpreting the settlement agreement it entered into with the Plaintiffs’ Steering Committee (PSC) in 2012. If the Supreme Court also rejects BP’s appeal, it could mean billions of dollars in additional settlement costs for the British oil giant. [1]
Headquartered in London, BP is one of the world’s leading oil & gas multinationals with operations in more than 80 countries. As a vertically integrated oil and gas major, it has both upstream and downstream operations. The upstream division primarily includes exploration and production activities for oil and gas, while the downstream division focuses on producing refined petroleum products such as gasoline.
We currently have a $53.5/share price estimate for BP, which is almost 5% above its current market price.
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On March 3, 2012, BP announced that it had reached an uncapped settlement agreement with the PSC to resolve a substantial majority of legitimate individual and business claims arising from the 2010 Deepwater Horizon incident that killed 11 people and sent more than 4 million barrels of oil spewing into the Gulf of Mexico. It initially estimated the settlement to cost $7.8 billion.
However, soon after the claim administrator, Patrick Juneau, started processing the claims, BP noted that claims related to the business and economic losses were being paid out at a significantly higher average amount than estimated. The company attributed this to misinterpretation of the terms of the agreement by Patrick Juneau.
The contentious issue here was, and remains, causation. BP’s argument is that some businesses are being awarded compensation for no actual losses suffered because of Patrick’s misinterpretation of the settlement agreement. In one of the examples cited by the company, a claim of $21 million was processed for a rice mill 40 miles away from the coast whose revenue actually increased in 2010.
On the other hand, the claims administrator and plaintiffs’ lawyers counter that the terms of the settlement did not require businesses to prove a direct link to the oil spill incident. Therefore, these apparently fictitious claims are a result of the loosely defined criteria laid out in the settlement agreement signed by BP. The plaintiffs’ lawyers have said that BP had “buyers’ remorse” over the settlement. [2]
BP has reached out to the District Court and the higher Fifth Circuit appeals court in New Orleans on several occasions but has not been able to achieve stricter causation requirements for the settlement of business and economic losses. If the same scenario repeats in the Supreme Court as well, the settlement could cost BP almost double the amount it had initially estimated. (See: BP’s Settlement Could Top $16 Billion Amid Failed Attempts To Limit Its Liabilities)
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Notes:- BP Will Seek Review By Supreme Court Of The United States, bp.com [↩]
- BP Faces Billions In Spill Payments As Court Upholds Deal, bloomberg.com [↩]