BP’s US$60-billion GoM spill tab rises as lawsuits wind down

BP raised the amount it will pay this year for the Deepwater Horizon accident as thousands of lawsuits related to the biggest oil spill in US history start to wind down.

The 2010 explosion at a well in the Gulf of Mexico threatened BP’s existence after 11 people were killed and millions of barrels of oil spilled into the sea. While the latest liabilities will add to the more than US$60 billion of penalties the company has already racked up, CEO Bob Dudley will see an end in sight to the largest court battles.

The London-based company will record a new US$1.7 billion charge in the fourth quarter of 2017 and pay US$1 billion of that bill in 2018, it said in a statement on the 16^th January. The remainder will be distributed over a number of years.

“With the claims facility’s work very nearly done, we now have better visibility into the remaining liability,” CFO Brian Gilvary said in the statement. “The charge we are taking as a result is fully manageable within our existing financial framework, especially now that we have the company back into balance at US$50/bbl.”

The latest charge will cover payments to business owners in the area, BP said. The company’s spill-related payouts will rise from an earlier estimate of US$2 billion to US$3 billion in 2018, while those for 2017 will remain at US$5.5 billion.

The payments have held back BP’s profits in the past. Its shares dropped as much as 2.1 percent in London on the 16^th January, the biggest loss in the Stoxx Europe 600 Oil & Gas index.

The British company faced more than 390,000 claims from businesses such as seafood producers and tourism providers following the oil spill. BP says some of them are not genuine. More than 99%of the cases have been reviewed, according to court documents. Some are being paid out when determined to be valid.

Still, the “last few remaining claims are likely to be the most complex and sizable,” according to Brendan Warn, an analyst at BMO Capital Markets.

The company agreed to settle all claims with the US federal and state governments in a US$21 billion agreement in 2015, removing a major chunk of risks related to the deadly accident and allowing Mr Dudley to grow the company again.

BP had at that time agreed to make the payments over about two decades, softening the blow on its balance sheet.

The company has said it will pay for the spill with money raised from asset sales. The higher 2018 payout means it will need to raise its divestment programme for the year, according to Oswald Clint, an analyst at Sanford C. Bernstein.

That’s “fully manageable” within the company’s existing finances, he said. “While truing up the oil-spill charge is a short-term headwind, we don’t see it preventing a solid delivery year for BP.”