Firm’s financial pain offset by rising oil prices as it winds down payouts from 2010 disaster
January 16, 2018 — BP is nearing the end of the $65bn (£47bn) Deepwater Horizon compensation process, it said as it announced an unexpectedly high payout of $1.7bn among the final few hundred outstanding claims.
The British oil firm said on Tuesday it would pay the $1.7bn charge in the last quarter of 2017 for court-ordered payments resulting from the worst oil spill in US history. It means BP will have paed out $3bn in compensation for 2017, compared with the $2bn anticipated.
The jump in spill-related costs is a reminder of how difficult it has been for the company to draw a line under Deepwater, eight years on from the Gulf of Mexico disaster, which affected everyone from fishermen to people working in tourism.
BP said the increase was partly due to a court ruling last year that tied the compensation to the company’s revenues.
The average compensation ruling levied by the US body that imposes the payouts has increased seven-fold over the past year, suggesting the most expensive and tricky claims have been left till last.
While $3bn is significantly less than the $7bn BP paid out in 2016, it was enough to upset investors. The company’s share price fell 2.65% on Tuesday, to 518.60p.
Brian Gilvary, BP’s chief financial officer, said the charge was manageable, with the firm breaking even at crude prices of $50 per barrel. The price is currently above $69 per barrel.
“With the claims facility’s work very nearly done, we now have better visibility into the remaining liability,” Gilvary said. The $1.7bn post-tax charge will appear in the company’s Q4 results, but will be paid out over several years.
BP has processed more than 99% of about 390,000 claims under the Court Supervised Settlement Program, and hopes to complete the remainder in the coming months.
Analysts agreed with BP’s assessment that the $1.7bn hit was manageable. However, BMO Capital Markets said the size of the charge showed that some of the final outstanding claims were likely to be the biggest and most complex. It also said there was the possibility of further claims beyond BP’s expectations.
The financial services firm said the charge would not affect BP’s ability to proceed with its share buyback scheme, which it announced last October as it returned to financial health.
BP vowed to challenge what it saw as unfair rulings on claims. “BP will continue to vigorously appeal determinations of claims that it believes are non-compensable under the Plaintiffs’ Steering Committee settlement agreement,” it said in a statement.
The company has been hamstrung in recent years by the legacy of the explosion and spill at the Macondo well, which killed 11 people. But its chief executive, Bob Dudley, has said 2017 felt like a turning point, as compensation payouts drew to a close.
The new headline cost of more than $65bn is higher than the $61.6bn the company estimated in 2016.
The latest financial pain for BP will be offset considerably by rising oil prices. Brent crude, the international benchmark, averaged $54 per barrel last year, up from $44 per barrel in 2016. The US government’s energy information adviser expects it to average $60 per barrel this year.