Will Oil Spill Payments ‘Irreparably’ Harm BP?

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The amount of money that BP (NYSE:BP) has been required to shell out due to its role in the 2010 Gulf of Mexico oil spill that spewed 4.9 million barrels of oil into the ocean has grown at an alarming rate, particularly in regards to the restitution payments the oil producer must make to the victims of the spill. These payments have, in fact, begun to cause BP a great deal of concern because its bill has ballooned greatly in recent months.

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According to the company, Patrick Juneau, the Louisiana lawyer administering the settlement agreement, has made payment awards based on a comparison much more favorable to claimants than the company had expected. BP argued in a U.S. District Court in New Orleans, where the company is once again on trial for the oil spill, that he was giving “unjustified windfall payments.”

BP has increased its efforts in recent months to challenge what it believes are unjustified compensation payments, doubling the rate at which it has appealed against the awards mandated by the multibillion-dollar settlement the company made last year with the thousands of U.S. businesses and individuals hurt by the disaster. In February, BP disagreed with just 4 percent of the payouts, but by May that number had soared to 9.3 percent.

The company said in a court filing, seen by The Financial Times, that it had been “ordered to pay hundreds of millions of dollars — soon likely to be billions — for fictitious and inflated losses.” It has argued that the settlement’s administrator has allowed businesses, including farms and construction companies, to pick the most favorable comparisons of costs and lost revenues brought by the oil spill. Now, BP wants the right to reclaim compensation payments that it has judged to have been wrongly paid.

A oft-stymied legal challenge has been mounted against the methods used by Juneau to calculate compensation awards; just last month the New Orleans court upheld his interpretation of the settlement’s terms, but the company continues to press forward. Its lawyers have appealed the court’s decision to keep the payment formula in its original form, and BP has been working to block an attempt by the the plaintiffs’ lawyers to delay a hearing set for July 8. The plaintiffs lawyers have asked to delay the hearing in the appeal by one month because the lawyer arguing their case — Samuel Issacharoff, a constitutional law professor at New York University — has a conflicting speaking engagement.

If the appeal is rejected, BP said the company would be “irreparably harmed,” and the spill settlement would “become an indelible black mark on the American justice system.”

So far, total awards have averaged approximately $250 million per month, which has forced BP to raise its projections of the total cost of the settlement from the $7.8 billion it estimated last year when the deal was inked to “significantly higher” than $8.2 billion. The most recent estimate even depends on its successful legal challenge of Juneau’s methodology. However, if it loses the appeal, the company said last month that “a further significant increase to the total estimated cost of the … settlement will be required.”

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Where BP claims the settlement is unfair, the plaintiffs’ lawyers have argued that Juneau’s interpretation of the agreement gave an “objective” comparison of costs and revenues based on cash flows. “Contrary to BP’s contention, the issue before this court is not an abstract evaluation of purported accounting principles, but the agreement reached by the parties,” they wrote, in a filing acquired by the Times. “Buyer’s remorse does not alter the deal that was struck.”

BP failed to secure an injunction to stop the payments while its appeal is heard.

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