Energy giant BP is likely to agree to pay the US justice department up to £16.2billion to settle all charges linked to its Gulf of Mexico oil spill, says a top analyst.
The sum predicted by Martijn Rats, head of European oil research at Morgan Stanley, is at least twice what BP has set aside. Mr Rats said he saw a 70-80% chance that the two sides would agree a deal on civil and criminal charges some time between BP’s full-year results on February 7 and the scheduled start of legal hearings in New Orleans on February 27.
BP sources have said talks continue with the justice department about a possible settlement and that the UK company’s board has shifted to weekly meetings to discuss progress. Chief executive Bob Dudley has said BP would like to settle, although not at any price.
BP had no comment to make over the likelihood or size of a settlement of the charges surrounding the April 2010 blast on the Deepwater Horizon rig, which killed 11 workers and led to the biggest oil spill in US history. It is thought the US administration would like to settle the matter, not least because it is a presidential election year, but any outcome is still seen as uncertain.
The estimated level of settlement in the Morgan Stanley note is the most detailed analysis so far on the potential cost of the spill and is much higher than other experts have predicted.
It is also about double the amount BP has made provision for, although senior company sources have said it is prepared for a massive payout.
One BP source predicted recently that it would offer “the mother of all settlements”. Another said the deal was likely to be the second largest in US legal history behind the £133.1billion the tobacco industry agreed to pay for treating smoking-related illnesses.
BP has the money to pay a £16billion-plus settlement; it is sitting on cash pile of over £12.9billion and has billions of pounds worth of assets on the block as part of its restructuring.
Morgan Stanley still predicts the larger-than-expected size of the payout will weigh on the firm’s shares, which closed yesterday up slightly at 482.45p. BP investors are expecting a dividend rise at its full year results but a big settlement would limit its ability to lift the payout.