Investors appear confident in BP settlement figure

March 19, 2012

BP's estimate that it will pay $7.8 billion to settle thousands of Gulf oil spill claims has reassured investors even as lawyers for plaintiffs emphasize that the figure may be low.

The settlement between BP and a plaintiffs' committee, announced March 2, puts no cap on what BP eventually may pay Gulf Coast individuals and businesses for economic and medical losses relating to oil that spilled from BP's Macondo well after it blew out on April 20, 2010. Eleven people died.

Their cases were to be part of a trial earlier this month combining much of the litigation arising from the spill, but U.S. District Judge Carl Barbier of New Orleans postponed the trial indefinitely after the settlement.

BP has not said how it arrived at the $7.8 billion figure - although it's consistent with guidance provided investors not long before the settlement was announced.

"While BP has sought to reliably estimate the cost of this proposed settlement, it is possible that the actual cost could be higher or lower than this estimate depending on the outcomes of the court-supervised claims processes," BP said in its announcement of the settlement.

For its part, the plaintiffs' committee has emphasized that the number could be much larger.

"Outside of the guaranteed commitment of $2.3 billion to the commercial fishing industry, the settlement is effectively a blank check," said Jim Roy, lead attorney for the Plaintiffs' Steering Committee. "No matter how many people show up, BP has to pay the full amount."

The deal, still subject to Barbier's approval, does not resolve pending environmental damage complaints by federal and state governments, cross-claims among BP and other companies involved in the Macondo project, or complaints by plaintiffs who weren't party to the settlement or may decide to opt out of it.

And plenty of unknowns remain among those who agree to the settlement negotiated by the steering committee - including how many plaintiffs eventually will come forward and the extent of future medical claims.

BP shares up

Despite the uncertainties, investors seem pleased or at least unfazed by the settlement. In the first day of New York trading after the settlement, the British oil company's shares closed at $47.96 - the highest since the beginning of the year. BP closed up 61 cents at $47.33 in New York trading Tuesday.

"What this does is remove the overhang of private sector litigation with all the fishermen, hotel owners - all that is now taken care of," said Pavel Molchanov, an analyst with Raymond James.

Financial analysts like the fact that the $7.8 billion estimate closely matches the contingency BP had estimated for plaintiff litigation in reporting its fourth-quarter 2011 earnings.

In that report, about two weeks before the settlement announcement, BP estimated that it would pay $7.825 billion for outstanding litigation and claims. It also estimated $1.5 billion for environmental claims and $3.5 billion for Clean Water Act penalties.

"Certainly helpful'

"I think it is helpful in the removal of uncertainty and certainly helpful in that it appears to match what BP had already booked," said Robert Kessler, an analyst for Tudor Pickering.

Some plaintiffs' attorneys, however, are skeptical of BP's ability to make such estimates.

"The way you normally do a class action is that you know how many claims there are, based on measurements like a product recall," said Brent Coon, who estimates he has 8,000 clients associated with the case. "BP doesn't know how many people are going to raise their hands to join that deal, let alone what the value of their claims is going to be."

But John Joplin, managing attorney for the nonprofit public interest law firm Mississippi Center of Justice, said the estimate is helpful in thinking about whether his 4,000 clients will receive settlement payments that leaves them feeling whole.

Our only concern … is that they compensate all of the affected residents of the Gulf Coast fairly and adequately and that they do so in a timely fashion," Joplin said.

emily.pickrell@chron.com