In May 2012, BP (NYSE:BP) and the lawyers for the individuals and businesses harmed by the 2010 Deepwater Horizon oil spill reached an accord to settle a class action lawsuit. Instead of the $20 billion fund created by BP, the agreement called for the court to administer compensation payments to Gulf Coast residents who endured the months-long oil leak that befouled miles of coastline, killed wildlife, and disrupted the economies of numerous states.
At the time, the company — which had already paid more than $6 billion from the original fund to around 200,000 individuals and businesses — estimated that payouts related to plaintiffs’ claims would cost just $7.8 billion. However, it did not say that the estimate represented the upper limit on what it would pay, an important designation to make, given the current dispute over BP’s bill.
In its second-quarter results, the oil producer revealed that its restitution-related costs grew by $1.4 billion, leaving the $20 billion fund set up to compensate oil spill victims nearly exhausted: just $300 million remains, and the deadline for Gulf Coast businesses — which account for the majority of the payouts — to file claims of economic loss is not until April. As BP’s challenge to how the court-appointed administrator distributes payouts has not been resolved, the company has said any future restitution payments will be deducted straight from earnings, according to Reuters.
Even though the company’s earnings have yet to be adversely affected by restitution payments, BP had a difficult quarter. On Tuesday, the oil producer reported that its adjusted net profit came in at $2.712 billion, far lower than the $3.41 billion expected by analysts and the $3.6 billion reported in the year-ago quarter. The earnings miss came as the result of lagging effects of a new tax in Russia, where the price of Urals crude oil was lower.
The lasting problems created by the gulf spill, which left 11 people dead and dumped millions of barrels of oil into the ocean, were made evident in BP’s earnings in more ways than the high claims payments. BP’s oil output in the United States, a crucial region, fell 4.4 percent from the previous year because of the company’s assets sales and the federal government-imposed moratorium on drilling.
Since 2010, BP has sold approximately $38 billion worth of assets to pay for its legal issues. However, most of these assets were oil and gas fields that it had deemed nonessential, and CEO Bob Dudley said that the divestments would make BP a more focused and eventually more profitable company.
Of the $1.4 billion spent on spill-related costs, about $900 million was for extra claims, while $500 million went toward administration costs of the claims administrator.
BP has argued in a U.S. District Court in New Orleans that Patrick Juneau, the Louisiana lawyer responsible for deciding which people and companies should be compensated — and by how much — has made payment awards much more generous than the settlement intended. In fact, the oil producer said that he was giving “unjustified windfall payments” in a statement. But, so far, the company has failed to convince U.S authorities to stop the payments and conduct a review.
Additionally, the second phase of a civil trial to assign responsibility for the oil spill will start in September. The trial’s first phase began in mid-February with the intention of determining whether the liability of BP,
Billions of dollars in damages will be at stake when the court makes its ruling. Dudley told The New York Times on Tuesday that if BP is prepared to dig in “for the long haul on legal matters,” it has increase its giant overall provision for the spill to $42.4 billion from $42.2 billion.
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