Canadian Manufacturing

New oil spill ruling could cost BP a whopping US$17.6B

BP was found to have acted with "gross negligence," leading to the worst-ever U.S. offshore oil spill. The ruling triggers the highest possible fines



NEW YORK—A judge’s ruling in the 2010 Gulf of Mexico oil spill case could cost BP an additional $17.6 billion in fines.

BP was found by U.S. District Judge Carl Barbier to have acted with “gross negligence,” leading to the worst U.S. offshore oil spill. The ruling triggers the highest possible fines under the Clean Air Act of $4,300 per barrel of oil spilled.

The number of barrels spilled is being debated but is likely to fall between 2.4 million and 4.1 million barrels. That translates to a fine of between $10.3 billion and $17.6 billion.

While BP has already spent at least $24 billion in spill-related expenses to date, including cleanup costs and payments to affected businesses and residents, it had set aside just $3.5 billion to cover what it thought would be a much smaller fine for actually spilling the oil.

BP shares took a hit, reducing the company’s market value by $8.66 billion.

Bruce Huber, associate professor of law at the University of Notre Dame, who specializes in environmental, natural resources and energy law said investors had already assumed BP would pay a bigger fine than the company hoped it would face.

That protected BP’s shares from falling even further, Huber said.

Analysts at Jefferies, for example, estimated fines of $10 billion. Raymond James analysts estimated fines of $8 billion.

Still, investors have a few new concerns based on the Auhust 4 ruling: The prospect of an additional big outflow of cash, and not knowing how or when the fine will be finalized or paid.

BP said it would appeal the ruling, a process that puts off a final decision on the size of the fine and also likely delay other pending court cases concerning the spill.

“It’s pretty severe,” said Justin Jenkins, an analyst at Raymond James, about the ruling. “And now there are even more unknowns about what the final number will be.”

BP sold $38 billion in assets, including refineries and interests in oil and natural gas fields, to fund its initial oil spill expenses and it is in the midst of a program to sell another $10 billion worth of assets by next year.

The new fines may require yet more asset sales, analysts said, though BP could also begin reserving money for the fine even as it appeals the decision. The company remains very profitable. Last year BP earned $24 billion on sales of $379 billion.

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