BP no longer fighting Macondo battle alone

May 20, 2011

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Fiona Maharg Bravo

BP is no longer fighting the Macondo battle alone. For over a year since the tragic explosion on the Deepwater Horizon rig in the Gulf of Mexico, BP’s partners in the well have blamed the UK oil major for the accident and refused to pay any bills. Now Mistui, with a 10 percent stake in the well, has agreed to pay BP $1.1 billion. The amount may be small, but the move is significant.

Mitsui’s settlement represents just 3 percent of BP’s own estimate of $41 billion for the spill, including fines. That’s far less than its notional share. Anadarko, which has a 25 percent stake in the well, has so far said it doesn’t owe anything to BP. Assuming it pays in the same proportion to Mitsui, BP would get another $2.7 billion from its partners. This is less than a third of its Mitsui’s and Anadarko’s theoretical $14 billion allocation of the total cost if liability is shared, excluding fines.

But Mistui had a strong bargaining position. Its investment in the Macondo well was via Moex, a special purpose vehicle in the United States without direct recourse to Mitsui. Anadarko’s participation, in contrast, was direct. It recently opened the door to a possible settlement “under the right circumstances.” Mitsui’s move piles on more pressure.

This may still not to move the dial much for BP. The critical risk for shareholders is whether BP is found to be grossly negligent under the Clean Water Act. This would quadruple fines for the spill to more than $17 billion. But Mitsui probably would not have settled if it believed BP was grossly negligent, since it might then have argued BP should be liable for everything. And Mitsui might even contribute to the cost of CWA fines. Its settlement excludes any share of punitive damages or fines, implying Mitsui would be on the hook for this.

BP’s market capitalization added as much as 3.4 billion pounds in morning trading on May 20, or $5.5 billion, reflecting some cautious optimism. That looks conservative. Mitsui is now siding with BP in concluding that Transocean was at least partly to blame for the accident. If BP can obtain just a fraction of the $40 billion claim it has filed against Transocean, plus settle with Halliburton and Cameron, which were involved in well construction and rig equipment respectively, then its bill will rapidly shrink.

Comments

This rings true to me. I think those who stood to gain from any success the project might have enjoyed must stand to pay for the project’s failure. Sandbox rules should prevail.

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