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BP says oil spill settlement is too costly

May 16, 2013 at 2:58 PM   |   Comments

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LONDON, May 16 (UPI) -- Oil giant BP has turned to the government for help with the compensation deal for victims of the 2010 Gulf of Mexico oil spill, the BBC reported.

"The rate at which cash is leaking from the company could turn into a serious new financial crisis for the company, putting at risk its dividend and making it vulnerable to a takeover by another oil company," the BBC said, citing sources close to the company.

The oil spill began with an explosion on the Deepwater Horizon oil drilling platform that killed 11 workers. Before it was capped, the leaking deep sea well spewed 4 million barrels of oil into the Gulf of Mexico.

"BP is so worried by the potential magnitude of alleged undeserved payments it is making to companies that it is planning to ask the U.K. prime minister and chancellor for help in persuading the U.S. government to intervene," the BBC said.

At the heart of the matter, BP is complaining the settlement, for which the company set aside $7.8 billion, includes an agreement to pay victims of the oil spill based on a reduced cash flow, rather than a reduced profits.

"All they have to show, says the court filing, is that cash flow in a specified month or months is lower than cash flow in the same month or months before the oil spill," the BBC reported on its website.

"In practice, according to BP, [these] companies don't have to show a fall in profits as measured on normal accounting practices."

An oil industry analyst said BP did not fully anticipate the size of the claims and was trying to dodge on a deal it negotiated.

"The problem is they've written a blank check to the businesses of Louisiana and not asked them to prove causality," said Malcolm Bracken, oil analyst from stockbrokers Redmayne Bentley.

"You can argue it [the settlement] is being abused, but that was the settlement they made and they are trying to wriggle out of it," he said.

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