BP Gulf of Mexico spill costs could top $90bn after fresh claims

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BP (LSE: BP.L - news) is facing damages claims of more than $34bn (£22bn) from state and local governments in the US over the Gulf of Mexico disaster, the oil giant admitted on Tuesday.

The claims push the total possible bill for the Deepwater Horizon disaster over $90bn, more than double the amount the British company has set aside for the accident, which killed 11 men and spilled millions of barrels of oil into the Gulf.

The oil major disclosed the claims as it revealed its profits halved in 2012, to $12bn, hit by criminal penalties over the disaster , as well as lower oil and gas output as it sold assets to pay for the spill response.

BP yesterday raised its total provision for the disaster to $42.2bn, reflecting additional costs from a record $4.5bn criminal settlement in which it pleaded guilty to the manslaughter of the 11 men who died.

But it also disclosed for the first time the huge scale of damages claims it faces from US state governments for their economic losses in the wake of the disaster. The claims are due to be heard at a trial beginning later this month in New Orleans which will cover outstanding civil claims against BP.

The British company said it would “vigorously” contest the claims for $34bn, which it said centred on alleged loss of tax revenue. The calculation was based on “seriously flawed” methodologies that were “not supported by the legislation” and “substantially overstate the claims”, the company stated.

“We probably provided one of the biggest fiscal stimuluses the Gulf has ever seen,” BP chief financial officer Brian Gilvary claimed. “We hired over 40,000 people to deal with [it] and paid taxes as a consequence.”

BP said its $42.2bn provision covered “fair and reasonable assessments of what those true state economic losses are”. This provision for the state governments’ alleged losses is understood to be a tiny fraction of the overall $34bn that is now being sought.

BP’s overall provision also includes $3.5bn for fines under the Clean Water Act (KOSDAQ: 131400.KQ - news) , although this could be dwarfed by the total possible fine of $20bn. BP disputes the US authorities’ view of both how much oil was spilled and the level of negligence involved. It strenuously denies a charge of gross negligence.

Most of the remainder of the $42.2bn estimate has already been assigned or paid out on the costs of cleaning up after the spill, as well as paying compensation and medical claims to individuals and businesses affected.

BP has been in talks with US authorities over a possible settlement to avert the trial over civil claims and had been hoping to settle them alongside the $4.5bn criminal settlement last November (Xetra: A0Z24E - news) . The demands made by the states are thought to have been a major stumbling block.

BP’s full-year results yesterday revealed a net one-off charge of $5.6bn in 2012. One-off costs included $5bn related to the Gulf disaster, and previously disclosed costs for a drop in value of shale gas assets and the decision not to proceed with a flagship drilling project off Alaska. These costs were offset by one-off gains from selling assets.

The profit figures are given on a replacement cost profit basis, which excludes the impact of changes to the value of the oil inventory.

Stripping out the impact of the one-off charges, BP’s full-year underlying profits fell 19pc to $17.6bn as it suffered from a 5.7pc fall in oil and gas output over the year due to asset sales.

Underlying profits beat expectations in its fourth quarter, however, falling 20pc to $4bn. Analysts had expected a larger fall, to $3.3bn, though had warned that forecasting was difficult at a time when the company was undergoing so many changes.

The sale of BP’s 50pc stake in Russian joint venture TNK-BP, agreed in October in return for $27bn in cash and Rosneft shares, meant it was able to book just 21 days’ income from the venture for the quarter. Underlying profits from TNK -BP were $575m, down from $987m in the same quarter of 2011.

BP raised its fourth-quarter dividend to 9 cents a share, payable on at the end of next month, an increase from 8 cents for the fourth quarter of 2011.

Bob Dudley, BP chief executive, said: “We have moved past many milestones in 2012, repositioning BP through divestments and bringing on new projects. This lays a solid foundation for growth into the long term.”

BP’s results come barely two weeks after the bloody end to the hostage crisis at its In Amenas jointly-run gas plant. BP said it remained committed to operating in Algeria but was reviewing its security operations around the world in light of the attack.

BP's in-tray * A trial over civil claims related to the Gulf of Mexico disaster is due to begin on February 25 in New Orleans. This will consider blame for the disaster and rule on damages, including penalties under the Clean Water Act for each barrel of oil spilled. BP is in talks with US authorities over a possible settlement to avert the trial. *The US Environmental Protection Agency suspended BP from bidding for new US government contracts following its admission in November of manslaughter over the Gulf disaster. BP is in talks to try to lift the ban but could lose contracts if they expire while it is barred from bidding to renew them. Chief executive Bob Dudley said US military fuel contracts that could be affected had very low margins but contributed “very high revenue”. *BP is still awaiting the completion of its $27bn landmark deal with Rosneft to sell its 50pc stake in Russian joint venture TNK-BP, in return for $12.3bn in cash and a near-20pc stake in Rosneft. It will then take two seats on the Rosneft board and attempt to drive improvements at the Russian company. *BP has indicated it will return some of the cash proceeds of the Rosneft deal to its shareholders but is yet to provide details. It is thought it could return at least $4bn in cash.