Is BP (NYSE: BP) getting the shaft?
That’s the case according to Theodore Olsen, one of the lawyers arguing on BP’s behalf. A three-judge hearing on the Fifth Circuit Court of Appeals will hear arguments from lawyers claiming that the judge who approved a multi-billion dollar settlement – and its court appointed administrator Patrick Juneau – are abusing the terms of the agreement by issuing thousands of extra claims to companies that were not adversely affected by the 2010 Gulf Coast oil spill.
So far, the claims far exceeded BP’s original payout estimate of $7.8 billion. BP lawyers want the appeals court to reject Juneau’s so-called liberal interpretation of the agreement.
BP’s bone of contention is not with individual payouts but with some companies claiming to have been directly impacted by the spill. BP has sent letters to plaintiff attorneys stating that if the appeals court rules on their side, the company will try to recover any payouts based on fictitious merits. But attorneys who represent plaintiffs counter that BP underestimated the volume and overall price tag of settlements. And there were no established caps when the settlement was negotiated.
One of the attorney advocates for the victims, Joe Rice, warned BP that the $7.8 billion figure was too conservative.
But the British energy company could cite Juneau’s new policy measures in January 2013 as the reason behind the higher approval in claims.
BP also takes issue with the fact that businesses do not have to prove they were directly impacted by the spill. Calculations of the payments are based largely on distance, but the court surmises that regional economic impact is enough to file a valid claim.
Claimants are allowed to use their own computing methods without lining up revenues and expenses. BP highlighted a case where $21 million was paid to a rice mill 40 miles away from the spill – despite growing revenue during the time of the spill.
Wall’s Gator Farm, 40 miles from New Orleans, was granted $1.2 million in awards. Wall’s was originally hit hard by the 2008 recession, which saw losses of $289,000 per year, but 2010 profits hit $1.6 million.
Juneau has granted over $2.2 billion to businesses as of June 2013, USA Today reports. 28% of the offers going over $3 million went to construction companies, and 11% had gone to law firms, according to numbers by BP.
BP’s lawyers also maintain that an army of trial lawyers are making gains in the system by getting money to clients who don’t deserve it.
There could very well be fraud in the settlement agreement, but BP will have a hard time making a case since it agreed to the terms.
BP in Trouble?
If more claims were handed out than necessary, this would further derail exploration efforts abroad.
And aside from the legal trouble down South, BP does not have the best track record in environmental and safety standards – something that could haunt the British giant as campaigns continue.
BP was recently called out by Norway’s Petroleum Safety Authority for poor maintenance and safety violations, which caused a leak in the Ula platform in the North Sea. This would mark the second censure since the 2010 oil spill.
U.S. offshore operations have been scant, despite President Obama’s willingness to open new offshore projects off the Florida coast, in the Atlantic, and off Alaska. Much of the oil focus in the U.S. has been on shale land drilling in North Dakota and Texas, two states primary at the helm of the shale oil boom.
Though inroads have been made into expanding limited operations in the Gulf Coast, 85% of offshore endeavors are still off limits under Obama’s plan.
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BP Activity
But even these ongoing legal woes haven’t stopped the mega oil giant from investing in Alaska. BP has long been an advocate of doing away with former Governor Sarah Palin’s old system of placing a 25% tax on profits above $30 per barrel of oil and adding a .4% increase for every dollar above $30.
When Governor Sean Parnell and the state legislature reformed the tax code for oil profits, BP followed with a $1 billion investment plan for two new drilling rigs in Alaska’s North Slope – once hailed as the state’s most prosperous drilling locale. The rigs are expected to be online by 2016.
And BP still has a large stake in the U.S., with the constant renewal of BP contracts from the Defense Department and the Pentagon to supply fuel for overseas war efforts. BP is the largest fuel supplier to America’s military machine.
Petroleum investors will be happy to know that BP recently sold its wind and solar assets to double down on petroleum. So far, BP has sold over $38 billion of assets comprising refineries, pipelines, and oil fields to pay for legal expenses and cleanup efforts in the Gulf Coast.
BP is still venturing a bit beyond traditional petroleum with the opening of the Vivergo bio-ethanol plant in the United Kingdom, which will supply 500,000 tons of animal feed per year to domestic livestock. BP has a joint venture with Dupont (NYSE: DD) and AB Sugar to open the plant.
BP managed to gain a heavy stake in Russian energy company Rosneft (MM: ROSN), when the state-run firm purchased TNK-BP (MM: TNBP). The deal made BP made the second largest shareholder in Rosneft after the Kremlin. Through its partnership with Rosneft, BP will exercise its expertise and technology in exploration projects, and there is even talk of BP helping Rosneft develop shale oil assets in the future.
BP also has investment plans in South Africa, Mozambique, and has been able to maintain positive business relations with Azerbaijan, despite the Russian deal.
When it comes to offshore exploration, BP is in talks with the Australian government to begin drilling in the Great Australian Bight off the coast of South Australia. BP also won a permit off the coast of Nova Scotia.
Too Big to Fail?
Shortly after the spill, some were spelling the inevitable downfall of BP, but so far the company has remained on steady ground. There are no good options when it comes to a major oil spill, and BP may never be able to escape its negative publicity and tarnished reputation.
But BP still has value in the world; it was because of the TNK-BP purchase that Rosneft is the largest oil producer in the world. And BP’s diverse operations around the world will maintain the company’s fiscal integrity.
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