Can BP Fight Its Way Out of Its Oil Mess?

When BP p.l.c (NYSE:BP) rushed to appease its victims and move on after the 2010 oil spill that killed 11 people and sent more than 4 million barrels of oil into the Gulf of Mexico, it quickly signed an $8 billion settlement with conditions that are now causing the company a significant amount of strife — and money.

According to Bloomberg, the company is now ready to fight the interpretation of that settlement, and is gearing up to appear before a U.S. appeals court in July to do so.

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Under the terms of the agreement, BP is responsible for compensating businesses that suffered economic losses which are presumed to have been caused by the oil spill. However, the methodology for evaluating these claims and assessing their validity is “arbitrary and irrational,” according to Geoff Morrell, a BP spokesman. Businesses are allowed to submit claims based on their own accounting, and as long as they meet a certain numerical formula, BP is required to pay up, regardless of other factors. This is then forcing BP to recompense for losses it wasn’t responsible for, or pay companies whose revenue didn’t suffer, as was the case with the rice mill 40 miles from the coast to whom BP was forced to pay $21 million.

Now, BP is appealing to the U.S. appeals court to help it negotiate each party’s interpretations of the settlement. The company is specifically arguing against the settlement’s claim administrator, Patrick Juneau’s interpretation, that U.S. District Judge Carl Barbier’s order agrees with.

The problem with BP’s settlement is that the London-based company was so anxious to move on after the accident that it agreed to a flawed deal, and one that effectively will end up costing BP billions of dollars. But that could simply be attributed to the fault of its attorneys who failed to negotiate the requirement that businesses prove their losses were caused by the spill in order to get paid.

Although BP contends in its court papers that the absence of this requirement is allowing businesses to accept BP’s payment for damages that were unrelated to the injuries sustained from the spill, Anthony Sabino, a law professor at St. John’s University in New York, argues that BP knew about the “false positives” when it signed the agreement, and “agreed that they wouldn’t have absolute discretion or the last word on final payments.” That is why many believe that the U.S. Court of Appeals in New Orleans is unlikely to reverse Barbier’s decision on July 8. Regardless of whether it rushed its settlement, BP was aware of the agreement’s terms and the reality of paying claims to plaintiffs whose losses weren’t connected to the spill.

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BP’s May 3 filing maintains that the company was unaware that it was repaying what it calls “fictitious” losses until 2012′s last quarter, “when business-loss awards approved by Juneau accelerated dramatically.” Last year, when it reached the settlement of most economic and medical-injur claims by private parties, BP expected the agreement to cost the company $7.8 billion. Since then, however, this estimated cost has risen to $8.5 billion according to a U.S. regulatory filing in February.

The company’s shares are still down almost 25 percent since the spill three years ago. Sabino’s advice to BP is to “shut up, write the check,” but the company most likely won’t go down that easily.

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