BP’s Supreme Court Appeal Rejection A Big Setback In Its Attempts To Limit Settlement Costs
In a crucial blow to BP Plc.’s (NYSE:BP) attempts of limiting charges associated with the 2010 Deepwater Horizon incident, the U.S. Supreme court recently rejected the company’s challenge to the multi-billion dollar settlement agreement it signed in 2012 to compensate Gulf Coast individuals and businesses impacted by the oil spill. The London-based oil giant sought review of the U.S. Supreme Court after an en banc review by the entire Fifth Circuit Court upheld the previous panel ruling by the court, rejecting the company’s arguments to create a new causation standard in the business and economic loss settlement. We believe that this could potentially 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 as well as 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 $52/share price estimate for BP, which is more than 33% 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. [2]
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. In another case, the company states that a Mississippi hotel was awarded more than $450,000 despite being closed for several months due to an unrelated fire. [3]
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 believe that BP is suffering with “buyers’ remorse.” [4]
BP reached out to the District Court and the higher Fifth Circuit appeals court in New Orleans on several occasions but failed to convince the judges on the need for stricter causation requirements in the settlement agreement. With the same scenario repeating in the Supreme Court as well, we believe that the settlement could cost BP almost twice 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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