Wednesday, September 29, 2010

BP (NYSE:BP) Negotiating with Feds Over Oil Fines

BP (NYSE:BP) has entered into negotiations with the Obama administration over coming to some type of settlement over fines related to the Gulf of Mexico oil spill.

According to Rep. Steve Scalise, R-La., his staff got wind of the discussions when working on legislation related to the oil spill which would keep money from fines paid out by BP in the Gulf region.

Unsurprisingly, the real battle is over whether or not BP will be labeled as being grossly negligent in relationship to the spill.

The problem with that is no study, other than the one conducted by BP, has been conducted to find out the absolute reason behind the accident.

So how could the government be battling over something that there is no conclusion made yet? The only reason BP is in their sights is no company related to the spill has the capital to pay the fines other than them. Of course they also had the largest stake in the well, but that has nothing to do with culpability.

It may surprise people, but BP is in the driver's seat in regard to this issue. If the government doesn't come to an agreement with them, all BP has to do is litigate, and that would take years, essentially holding up any fines being paid out until then, and with no guarantee the government would win the case (in reference to BP being considered grossly negligent).

Just under the Clean Water Act, BP could pay out up to $21 billion. It's doubtful it will ever come to that, as that wouldn't include other fines and the money they'll have to pay out from the hundreds of lawsuits.

Even with the size of BP, they just aren't big enough to pay that kind of money out, which doesn't include the $20 billion escrow fund which has the claims part of the fund administered by Kenneth Feinberg.

There should be a settlement of some sort, but it will depend on how far the Department of Justice wants to take it. If they ask for too much, it may leave BP few options.

Again, the problem is there are no conclusions yet made as to the cause of the disaster, and until that is investigated and discovered, it's hard to see the government has to stand on; at least concerning the decision on whether or not BP was grossly negligent, which is the crux of this particular part of the fine process.

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