Analysis: BP report boosts legal case, hits political goals

Crews aboard vessels around the drillship Discoverer Enterprise continue operations to minimize the impact from the BP Deepwater Horizon oil spill in the Gulf of Mexico in this June 28, 2010 handout photograph.

LONDON (Reuters) - The findings of BP's internal probe into the events leading up to the Gulf of Mexico oil spill are likely to reduce its liabilities but may work against the company in the long term by hurting its image in Washington.

BP issued a report compiled by its head of safety, Mark Bly, on Wednesday, in which it laid most of the blame for the rig blast on the contractors hired to drill and cement the faulty well -- Transocean and Halliburton, respectively.

Bly's team said errors by the contractors led to most of the failures, which, in combination, led to the rig explosion and the resulting spill.

Analysts said that if independent investigations uphold BP's technical findings, it is likely that accusations of recklessness and egregious errors on BP's part will not stick.

"We suspect this makes a gross negligence case hard to prove," said Richard Griffith at Evolution Securities.

Up to $40 billion hangs in the balance on this point.

Anadarko Petroleum, which owns 25 percent of the blown out well, has said it believed BP has been grossly negligent.

If a court upholds this view, BP will not be able to reclaim 25 percent of the costs from Anadarko, or 10 percent from Mitsui, the Japanese company which owns 10 percent of the well.

The final clean up cost and compensation bill are estimated to total from almost $30 billion to over $50 billion.

Gross negligence would also mean BP had to foot fines of around $22 billion, rather than a bill of potentially less than $4 billion.

Analysts said the outcome remained unclear but they are increasingly confident BP will be able to share the costs.

"We have reduced our base assumption of its net liabilities for the disaster to $30 billion from $40 billion," Gordon Gray at Collins Stewart said.

BP shares added to Wednesday's gains on Thursday, rising 1.15 percent in London at 1401 GMT.

Societe Generale analyst Evgeny Solovyov said the report represented an "important milestone" whereby BP will now feel comfortable to take a tougher legal line with its challengers.

"We now expect BP to turn its attention from dealing with the immediate task of containing the spill to minimizing its financial liabilities," he said.

NOT BEST PRACTICE

London-based BP relies on the U.S. for its growth plans. The report is unlikely to sway those lawmakers who say the blast is the result of a sloppy approach to safety and who want to bar the company from drilling in the Gulf of Mexico again, academics said.

"The report doesn't discuss at all whether or not there were people cutting corners or if some compromises were made. I think that's really what the government's focus will be," said Ken Medlock, energy fellow at the Baker Institute at Rice University in Texas.

"In terms of the weight that carries with policy makers, I would discount it pretty heavily," he added.

U.S. regulators blamed an explosion at BP's Texas City refinery in 2005 and leaking pipelines in Alaska in 2006 on cost cuts.

BP's report also undermines its own claims to be a leader on safety.

The company criticized Transocean for failing to spot growing pressure in the doomed well for 40 minutes.

However, Bly acknowledged that BP's exploration headquarters in Houston had access to the data in real time and did not monitor it -- something rivals such as Shell do.

The report also found no fault with BP's decision to circulate drilling mud in the well for a much shorter period than industry lobby body the American Petroleum Institute recommends.

Mud is circulated to help show if gas is escaping into a well.

Also, in saying contractors were solely responsible for key decisions, such as the design of the cement used, BP reinforces accusations from some rivals that it lacks the expertise needed to oversee contractors properly.

BP has long outsourced more work to contractors than rivals like Shell and Exxon Mobil do.

Gibson Vance, lawyer with Beasley Allen, which is representing the State of Alabama in a lawsuit against BP, said the report was likely to do more harm than good to BP's standing in Washington.

"The politicians are going to remain skeptical. With this report, BP has decredited itself," he said.

(Additional reporting by Ayesha Rascoe; Editing by Andrew Callus)