BP Fears U.S. Unit Insolvency on Deepwater Horizon Spill Fine - Analyst Blog

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Oil giant BP plcBP if of the opinion that an oil spill fine higher than $2.3 billion would drain its U.S. unit of cash and threaten its future operations in the Gulf of Mexico (GoM). The company faces up to $13.7 billion in fines for pollution caused by the Apr 2010 disaster.

Under the US Clean Water Act, an additional fine of about $18 billion could be slapped on BP if it is found guilty of gross negligence for the Deepwater Horizon blowout that killed 11 workers and spilled millions of barrels of oil in the GoM. It took nearly three months for BP to cap the well, which was finally sealed in September. BP had continuously maintained that a strong ruling over America's biggest offshore oil accident could be evaded.

The British oil giant revealed the threshold figure in court papers filed on Mar 27. It is the first mention of a specific dollar figure as BP seeks to reduce its potential fine for the Gulf of Mexico oil spill.

BP is of the opinion that its U.S. unit, BP Exploration & Production, or BP XP, is "limited" in its ability to pay the fines. A larger fine would drain the subsidiary of cash for 2015 and push it to the brink of insolvency.

Under the Clean Water Act, the statutory maximum penalty where the court finds simple negligence is $1,100 a barrel while it is $4,300 a barrel for gross negligence or willful misconduct.

BP thinks that the evidence at the trial does not support the notion that it was grossly negligent and that its activities at the Macondo well were a result of willful misconduct. The law sets a very high bar for establishing gross negligence, which the company holds was not met in this case. BP believes that an unbiased view of the record would not lead to the conclusion of the district court.

During the penalty proceedings, BP will look to prove that its conduct deserves a penalty that is less than the applicable maximum after the statutory factors are considered.

BP now carries a Zacks Rank #3 (Hold). Some better-ranked players in the energy sector are Valero Energy Partners L.P. VLP , Sprague Resources LP SRLP and Western Gas Equity Partners LP WGP . Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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