BP plc Oil Spill Cost Pass $8 Billion As Claims Back Up

BP plc (NYSE: BP) disclosed that its costs to clean-up the Deepwater Horizon catastrophe have risen above $8 billion, and the company still has to fund a $20 billion escrow account to handle ongoing claims. Even with the new escrow account in force, very few people have received the financial support that the probably deserve. BP said in a statement that on August 23, the processing of all claims by individuals and businesses related to the Deepwater Horizon incident transferred to the Gulf Coast Claims Facility run by Ken Feinberg. “Since the transfer, over 42,000 claims have been submitted to the fund, with over 4,900 claims totalling some $38.5 million being paid.” Those numbers are grim for people and businesses who need help.

BP may be close to a final solution to end the spill. The leak is capped and a relief well has moved down 17,909 feet which puts it within days of penetrating the ocean floor. That means that the damage has been done has been done, however horrible and widespread it may be.

The escrow solution may not turn out to be much of a solution at all. The fund was set up to speed up the payment of claims. There is no evidence that Administrator Ken Feinberg can do this any faster than BP can. As a matter of fact, BP may have been able to accelerate payments, if for no other reason than to control its liability. Based on the early figures, the process of getting money from the escrow account will be slow.

The US government assumed that if it could create a system that took BP out of the picture as claims were processed and paid. The conflicts of interest between fair compensation and BP profits would undermine fair consideration of financial loss and perhaps misery if the UK-based company were in charge. That notion does not really make any financial sense. BP’s incentive to put the Deepwater Horizon costs behind it are greater than they are for any other entity.

Douglas A. McIntyre