The Shadow of BP’s 2010 Oil Spill Just Grew Longer

Oil Refineries

How much financial compensation individuals and business harmed by BP’s (NYSE:BP) 2010 Deepwater Horizon oil spill should receive has been adjusted several times and debated over and over again.

Up until approximately six months ago, BP attempted to cooperate with the mountain of litigation that government agencies, private individuals, and businesses dumped on its docket, spending more than $25 billion cleaning up the marshes, fisheries, and beaches along the coast and compensating victims.

But in February, that changed. The company stopped pursuing a settlement for the federal government’s civil charges, and the trial began in a New Orleans district court. Several months later, when the restitution payments started to overshoot their original estimate, BP began to contest the manner in which restitution payments were awarded, arguing that court-appointed fund administrator Patrick Juneau compensated “fictitious claims,” according to Reuters.

Not only have the legal tactics the company employed to cap its financial tab not produced any favorable results as of yet, but the original April 2014 deadline for compensation claims to be submitted is likely to be extended, sources from both the court-administered compensation fund and BP told Reuters. The claim period may even last until 2015, but no official determination will made until October.

According to the terms of the 1,03 page settlement signed by BP last year, there are two possible deadlines, of which April 22 is the earliest. Because the numerous appeals to the settlement have yet to be resolved and are unlikely to be resolved by April, the “effective” deadline will be pushed back, according to the news outlet.

“I say it will be at least the end of 2014 before the appeals process ends and ‘effective date’ can occur,” Joe Rice, the lawyer who negotiated that settlement on behalf of more than 100,000 compensation claimants, told Reuters.

While the end date was always potentially moveable, analysts told the publication that the indefinite length of the compensation period may not have been fully appreciated by investors. Not only that, but the extended deadline means the oil producer will have to wait even longer to put the oil spill firmly in the past. BP would like to see the the payments completed quickly, as the full cost of its class-action settlement with oil spill victims has begun to be a point of concern.

By the end of June the costs of compensation had hit $9.6 billion, and since then, restitution costs have continued to climb. In its second-quarter results, the oil producer revealed that restitution-related costs skyrocketed, leaving just $300 million in the $20-billion fund set up to compensate oil spill victims. BP has said any future restitution payments will be deducted straight from earnings.

However, not all analysts believe the extension will make much of a difference. “One has to assume that there is a finite limit to the number of claimants, and that the April deadline will see the vast majority of them submitted,” Investec analyst Neill Morton told Reuters.

Much damage has already been done. The assets that BP has sold to finance its $42.4 billion spill bill amounted to a fifth of the company, and, long ago, the company dropped from the second-largest global oil company to fourth as its ever-growing spill bill decreased the company’s earnings power.

Even the oil producer’s dispute about the nature of its settlement with oil spill victims has done damage, albeit of a slightly different variety. Since BP began protesting the way in which restitution payments were made five months ago, the shares of its struggling stock have fallen about 4.5 percent.

“I think there is little doubt that the escalation in the dispute over the fairness or otherwise of business claims has cast a cloud over BP’s share price performance in recent months,” Morton said to Reuters. In respect to the company’s stock price, the prospect that claims could last longer than investors widely expected could be problematic.

Shareholders have already suffered as a result of the asset sales, which wiped away $5 per year in cash flow. CEO Robert Dudley said in a company release that BP is “digging in” and will “play it long” for the sake of shareholders.

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