March 7, 2013 / 1:33 PM / 7 years ago

BP faces escalating spill payouts after court ruling

LONDON (Reuters) - BP must keep paying certain types of oil spill compensation in much larger amounts and to more parties than it was expecting, according to a court ruling which could add billions to its final bill.

A British Petroleum (BP) sign is seen at a petrol station in south London July 29, 2008. REUTERS/Dylan Martinez (BRITAIN) - RTX87R7

The March 5 ruling, made by the New Orleans court where BP is battling to keep a lid on other fines and penalties, was outlined in the company’s annual report.

The decision applies to payments made as part of a settlement stemming from the Deepwater Horizon oil spill in the Gulf of Mexico in 2010 which BP has already agreed, but where the actual amount is uncapped.

BP had earmarked $8.5 billion for payments which included claims for “Economic and Property Damages”.

BP said it would appeal the ruling, which upheld the payout administrator’s interpretation of the settlement, and which has resulted in more and larger payouts than BP had expected.

“BP strongly disagrees with the ruling of 5 March 2013 and the current implementation of the agreement by the claims administrator,” it said.

“BP intends to pursue all available legal options, including rights of appeal, to challenge this ruling.”

BP also removed about $800 million from its $8.5 billion estimate for compensation claims under this part of its $42.2 billion of total spill provisions so far.

Far from signaling a lower potential final bill, however, BP said the reduction reflects “the inherent uncertainty that exists... (over) the higher number of claims received and higher average claims payments than previously assumed”.

BP said even if it wins its appeal, its final bill for this type of compensation will be much higher, because claims not yet received or processed are not reflected in its current estimate, and because the average payments per claim determined so far are higher than anticipated.

“If BP is not successful in its challenge to the court’s ruling, a further significant increase to the total estimated cost of the Settlements will be required,” it said.

The higher rate of payments were earlier flagged by BP in its fourth quarter results, and it has raised its estimate of payouts in each of the past two quarters, taking it to $8.5 billion from an initial $7.8 billion.

BP believes the way in which the claims administrator is implementing the settlement agreement with respect to business economic loss claims is contrary to the agreement.

Reporting by Andrew Callus; editing by Jason Neely

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