BP starts court fight over Gulf of Mexico oil spill

The Deepwater Horizon oil rig burning after the explosion in the Gulf of Mexico (AP)

BP will start one of the biggest fights in its 104-year history next week as the US Government sues the oil giant for the devastation caused by the Gulf of Mexico disaster.

The group will be in the dock alongside contractors Halliburton and Transocean as a single judge decides who was to blame for what happened when the Deepwater Horizon rig exploded, claiming the lives of 11 men and triggering the biggest oil spill in US history.

The British company will face the wrath of the US Federal Government, several states, various local government authorities and hundreds of independent plaintiffs before Federal Judge Carl Barbier at a court in New Orleans, Louisiana, on Monday.

On top of millions of pounds of legal fees, BP and the contractors could face a penalty of up to $17.6bn (£11.1bn) for water pollution alone if the court finds gross negligence was at play.

The company's balance sheet could be severely bruised by the court case, which is set to continue well into next year, as it has only made a provision of $3.5bn (£2.2bn) for penalties.

BP will battle to apportion blame on the contractors, in particularly US oil services firm Halliburton, which it accuses of providing the wrong type of concrete to seal the offshore well that for months gushed millions of barrels of oil into the sea.

The court case starts amid increased speculation that BP is close to securing an out-of-court settlement - reflected in a recent lift to its share price.

Chief executive Bob Dudley recently hinted that the company was open to talking to plaintiffs. Announcing the company's annual results, the American boss said: "As I have said before, we are prepared to settle if we can do so on fair and reasonable terms, but equally, if this is not possible, we are preparing vigorously for trial."

There are reportedly 535 individual lawsuits to be heard, covering 120,000 plaintiffs and 72 million documents. Independent plaintiffs are represented by the plaintiffs' steering committee.

The explosion on April 20 2010 saw between four and five million barrels of crude oil leak into the Gulf.

BP has set aside $40bn (£25bn) to cover the cost of the disaster, however, within this, the only provision for penalties is $3.5bn for water pollution damages.

The US government is entitled to demand compensation amounting to $1,100 for each barrel spilled, and if gross negligence is shown in court, BP and associated companies could be liable for up to $4,300 a barrel.

The company has since paid $7.5bn (£4.7bn) in clean-up costs and compensation, with more than 200,000 individuals and businesses claiming compensation from the $20bn (£12.6bn) fund set aside for victims.

The supermajor reported annual replacement cost profits of $23.9bn (£15.1bn) in 2011, compared with a loss of $4.6bn (£3.1bn) the previous year.

The company has already reached settlements with a number of partners in the well, in which BP owned a 65% stake, including Anadarko, which had a 25% stake, and Moex, which had a 10% share.

And US-based Moex last week settled with federal and state governments, paying $90m (£56.9bn), fuelling speculation that BP could do the same.

PA