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BP Said to Consider $14 Billion Spill Settlement

By on February 27, 2012

BP Plc (BP/) and plaintiffs suing over the 2010 Gulf of Mexico oil spill are discussing a $14 billion accord that would be funded with money originally set aside by the company for out-of-court settlements, according to three people familiar with the talks.

BP would agree to close down its $20 billion Gulf Coast Claims Facilityand shift the remaining $14 billion to plaintiffs who contend the spill harmed their businesses and properties, the people said. A deal with the plaintiffs wouldn’t include potential pollution fines. BP set up the GCCF in August 2010 to allow spill victims to receive compensation more quickly than by pursuing lawsuits. The fund has paid out about $6 billion so far, according to its website.

The April 2010 Macondo well blowout sent more than 4 million barrels of oil spewing into the gulf over 87 days, making it the largest offshore spill in U.S. history. The disaster spawned hundreds of lawsuits against BP and its partners, including Transocean Ltd. (RIG), the Vernier, Switzerland- based owner and operator of the Deepwater Horizon drilling rig, and Houston-based Halliburton Co. (HAL), which provided cementing services at the facility.

“They could be about 90 or 95 percent done and now they have to go that last yard, which is always the toughest,” Carl Tobias, who teaches mass-tort law at the University of Richmond in Virginia, said of the proposed accord. “There could be an awful lot of money that is still in play or provisions that are hard to swallow for one side or the other.”

Extra Time

The progress in settlement discussions allowed BP to persuade a federal judge in New Orleans yesterday to delay a multibillion-dollar liability trial over the spill that was set to begin today. They asked for extra time to allow talks to continue, the company and plaintiffs said in a joint statement. They didn’t make reference to the $14 billion proposal.

The discussions between the plaintiffs and London-based BP are nearing completion, said the people, who declined to be identified because they weren’t authorized to speak publicly.

Ellen Moskowitz [], a spokeswoman for BP, declined to comment on the proposed accord beyond the earlier joint statement. David Falkenstein, a spokesman for the lead plaintiffs’ lawyers in the case, didn’t return calls seeking comment yesterday.

BP shares gained as much as 1.9 percent in London to the highest in more than a year and traded at 503.3 pence as of 10:21 a.m.

Proposed Agreement

The proposed agreement would be separate from BP’s talks on fines with government lawyers, who have sued over pollution claims tied to the spill, the people said. They declined to predict when any settlement would be announced.

The U.S. Clean Water Act lets the government seek fines of as much as $1,100 for each barrel of oil spilled as a result of simple negligence, often described as a failure to exercise ordinary care. The maximum increases to $4,300 a barrel for gross negligence, or a conscious act or omission, leaving BP liable for as much as $17.6 billion in fines. The London-based company set aside $3.5 billion to pay Clean Water Act fines based on its own lower estimate of barrels spilled and no finding of gross negligence.

BP has been in settlement talks with the federal government, plaintiffs suing over the spill and other companies facing liability in the cases for months, people familiar the discussions have said.

Barbier’s Decision

U.S. District Judge Carl Barbier, who will preside over the trial, now scheduled to start on March 5, must rule whether BP can expect other firms involved in the spill to help pick up the tab for the estimated $26 billion in costs spawned by the sinking of the Deepwater Horizon rig.

If there isn’t a deal reached by all sides, the judge must determine whether the companies should pay punitive damages to thousands of business and property owners, and fines to the government for polluting the Gulf of Mexico.

The proposed settlement would allow plaintiffs’ lawyers to use the GCCF money to set up a system for compensating spill victims based on the type of harm they suffered, the people familiar with the talks said. The system likely would be similar to those used to decide recoveries in class-action cases, they said.

The GCCF was set up to make emergency and other types of payments to spill victims under the U.S. Oil Pollution Act to speed up assistance and cut down on the number of claims filed in court. BP agreed to make $20 billion available to handle the claims.

Fund Payments

As of Feb. 24, the fund has paid out almost $6.1 billion to individuals and businesses claiming damages from the explosion and oil spill, according to GCCF’s website.

Attorneys for some victims argued in court filings that officials of the fund, run by Washington-based lawyer Kenneth Feinberg, used “coercive tactics” to force business and property owners to accept inadequate payments for their claims and give up their rights to sue.

While lawyers for plaintiffs whose cases have been consolidated before Barbier for pre-trial proceedings proposed the $14 billion settlement, attorneys for other spill victims are likely to oppose the accord as inadequate, the people familiar with the talks said.

The proposed settlement wouldn’t resolve any claims between BP, Transocean and Halliburton over financial liability for handling of the Macondo well and the subsequent explosion of the drilling rig, which killed 11 workers.

Anadarko, Schlumberger Deals

BP agreed in October to a $4 billion settlement with Anadarko Petroleum Corp. (APC), which owned a 25 percent stake in the Macondo well. It also agreed earlier this month to drop claims against drilling fluid provider M-I Swaco, a unit of Houston- based Schlumberger Ltd. (SLB)

Transocean officials alleged in a Feb. 24 court filing that BP officials overseeing the Macondo well ignored questions about whether safety tests done hours before the blast were flawed.

Donald Vidrine, the senior BP manager on the Deepwater Horizon on April 20, 2010, talked with an engineer about unsatisfactory well tests less than an hour before the explosion, Transocean’s attorneys said.

While Mark Hafle, a Houston-based BP drilling engineer, warned Vidrine in a phone call that stability tests on the well might be flawed, “neither man stopped work” at the facility, Transocean said.

Gas Leak

The BP officials allowed crews to continue displacing drilling fluid in the well with seawater, the attorneys for oil- drilling company said. Experts who reviewed the companies’ handling of the well noted that once the fluid was removed, the lighter seawater couldn’t stop natural gas from leaking into the well and causing an explosion.

Scott Dean, a BP spokesman, declined to comment on the Transocean filing about the flawed safety tests.

Vidrine has refused to testify, citing medical-related problems and Hafle has invoked his constitutional protection against self-incrimination for refusing to testify.

The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).