BP Clean-Up Costs Move Above $3 Billion As Company Pushes Partner Payments

BP plc (NYSE: BP) said its costs for the Gulf clean-up of the oil spill have hit $3.12 billion. The company recently demanded that its two partners in the Deepwater Horizon catastrophe pay their “fair share” of damages. Anadarko Petroleum Corporation (NYSE: APC)  owns 35% of the joint venture that drilled the well and Mitsui Oil Exploration owns 10%. BP sent demands for $400 million to the two companies on June 2. Anadarko may not be large enough to cover its liabilities if a cour\t finds that it is responsible for a quarter of the clean-up costs.

The expenses for the clean-up so far according to BP involve “almost 95,000 claims have been submitted and more than 47,000 payments have been made, totalling almost $147 million.” BP’s liability is higher than the $3 billion. It has set up an escrow account of $20 billion to cover claims.The legal battle which BP faces now goes beyond its liabilities for the clean-up and will almost certainly extend to a lengthy legal fight with its partners. Anadarko has already publicly stated that the leak was caused by BP’s gross negligence. The statement almost certainly means a lawsuit between the two firms is not far off.

The fight about what BP’s partners owe will be a vicious one. Anadarko’s market capitalization had dropped to $19 billion compared to BP’s $92 billion. The US company may find that, due to its size, it will not be able to raise a war chest like the facility that BP is putting in place. The UK-based company is garnering more than over $30 billion from asset sales, bank lines already in place, and new borrowing. It is rumored that BP will get money from several sovereign wealth funds.

BP may be in deep trouble, but if Anadarko has to pay for 25% of the costs of the spill, its modest balance sheet, with $3 billion in cash and $12 billion in long-term debt, and its very modest net income will not be enough to keep it from being swamped.

Douglas A. McIntyre