A settlement being discussed between BP and attorneys for hundreds of businesses and others suing over the Deepwater Horizon disaster could tap billions of dollars remaining in a claims fund set up after the accident.
BP pledged $20 billion to the fund in the summer of 2010, but only about $6 billion has been paid to Gulf Coast businesses and individuals. Under one possible deal, the fund would be closed and the balance of about $14 billion used to settle legal claims, according to a person familiar with the negotiations.
If such a settlement between BP and the steering committee of attorneys for private plaintiffs is reached, it wouldn’t resolve civil claims from the federal or state governments that are also involved in the case, the person said. BP and other companies involved in the case also still may face criminal liability under federal anti-pollution laws.
“BP would love to settle, but not at any price,” said Eric Smith, a finance professor at Tulane University and associate director of the Entergy-Tulane Energy Institute, who’s been following the case. “They’re going to do better out of court than in court.”
The massive case to determine legal liability for the worst offshore oil spill in U.S. history was delayed over the weekend by U.S. District Judge Carl Barbier in New Orleans, who cited “reasons of judicial efficiency and to allow the parties to make further progress in their settlement discussions.”
In a joint statement Sunday, BP and the steering committee of lawyers for the plaintiffs said they were working to reach an agreement that would fairly compensate people and business affected by the Deepwater Horizon accident and the spill that followed it. If no agreement is reached, the proceedings are scheduled to begin in New Orleans federal court on Monday.
Meanwhile, the Deepwater Horizon’s owner, Transocean, booked a $1 billion fourth-quarter contingency charge for costs related to the disaster, which killed 11 rig workers, including nine Transocean employees.
The charge is “the low end of the range of reasonable possible losses,” related to the accident, Interim Chief Financial Officer Gregory L. Cauthen told analysts during a conference call Monday.
“We’ve been in the dark on what the financial liability is going to be on this,” said Collin Gerry, vice president of oil field services research for financial firm Raymond James. “It’s not a small number. But it’s at least a number.”
BP and Transocean have indicated a willingness to settle the case on what they consider reasonable terms.
“We are still interested in finding an acceptable resolution that allows us to put the uncertainty behind us,” Transocean CEO Steven L. Newman told analysts. “We are well prepared to argue the merits of our case at trial.”
In addition to the claims from business owners, survivors of the blast and family members of the workers who were killed, the companies face civil claims by the Justice Department that they violated the federal Clean Water Act.
If BP or the other defendants were found grossly negligent under those laws, fines could run as high as $18 billion just for the government claims.
“I don’t think BP has the stomach for the trial, with good reason – the facts and law are clearly against them and they can’t win this one,” said Blaine LeCesne, a law professor at Loyola University who has followed the case. “You have strict liability, multiple deep-pocket defendants who can afford to pay the judgment, good prospects for punitive damages and billions of damages involved.”
At the same time, if business owners win punitive damages, the companies could wind up paying much more than $14 billion, he said.
The claims fund, officially known as the Gulf Coast Claims Facility, has been administered by attorney Kenneth Feinberg, who was appointed by President Barack Obama. Feinberg didn’t respond to an email message seeking comment.
“One theory says that Feinberg’s never going to spend $20 billion,” said Smith, the Tulane professor. BP may be willing to use the money to settle the legal case, because it already has earmarked the fund for claims, he said.
Reporters Emily Pickrell and Simone Sebastian contributed to this story.