BP 2012 Annual Report Download - page 255

43. Contingent liabilities
Contingent liabilities relating to the Gulf of Mexico oil spill
As a consequence of the Gulf of Mexico oil spill, as described on pages 59-62, BP has incurred costs during the year and recognized provisions for
certain future costs. Further information is provided in Note 2 and Note 36.
BP has provided for its best estimate of amounts expected to be paid from the $20-billion trust fund. This includes certain amounts expected to be paid
pursuant to the Oil Pollution Act of 1990 (OPA 90) as described in Note 36. It is not possible, at this time, to measure reliably other obligations arising
from the accident that are under the terms of the trust fund, namely any obligation in relation to Natural Resource Damages claims (except for the
estimated costs of the assessment phase and the costs relating to early restoration agreements as described in Note 36), claims asserted in civil
litigation including any further litigation through excluded parties from the PSC settlement, the cost of business economic loss claims under the PSC
settlement not yet received or processed by the Deepwater Horizon Court Supervised Settlement Program (DHCSSP), any further obligation that may
arise from state and local government presentment claims under OPA 90 and any obligation in relation to other potential private or governmental
litigation, nor is it practicable to estimate their magnitude or possible timing of payment. Therefore, no amounts have been provided for these
obligations as at 31 December 2012. The $20-billion trust fund may not be sufficient to satisfy all claims under OPA 90 or otherwise that will ultimately
be paid.
Natural resource damages resulting from the oil spill are currently being assessed (see Note 36 for further information). BP and the federal and state
trustees are collecting extensive data in order to assess the extent of damage to wildlife, shoreline, near shore and deepwater habitats, and recreational
uses, among other things. The study data will inform an assessment of injury to the Gulf Coast natural resources and the development of a restoration
plan to mitigate the identified injuries. Detailed analysis and interpretation continue on the data that have been collected. Any early restoration projects
undertaken pursuant to the $1-billion framework agreement could mitigate the total damages resulting from the incident. Accordingly, until the size,
location and duration of the impact is assessed, it is not possible to estimate reliably either the amounts or timing of the remaining Natural Resource
Damages claims, therefore no amounts have been provided as at 31 December 2012.
As set out more fully in Note 36, business economic loss claims received by the DHCSSP to date are being paid at a significantly higher average amount
than previously assumed by BP. Further, BP has identified multiple business economic loss claim determinations under the PSC settlement that
appeared to result from an interpretation of the Economic and Property Damages Settlement Agreement by the claims administrator that BP believes
was incorrect. This interpretation produced a higher number and value of awards than the interpretation BP assumed in making the initial estimate of the
cost of the settlement. Pursuant to the mechanisms in the settlement agreement, the claims administrator sought clarification from the court on this
matter and on 30 January 2013, the court initially upheld the claims administrator’s interpretation of the agreement. On 6 February 2013, the court
reconsidered and vacated this ruling and stayed the processing of certain types of claims. The court lifted the stay on 28 February 2013. On 5 March
2013, the court affirmed the claims administrator’s interpretation of the agreement and rejected BP’s position as it relates to business economic loss
claims. BP strongly disagrees with the ruling of 5 March 2013 and the current implementation of the agreement by the claims administrator. BP intends
to pursue all available legal options, including rights of appeal, to challenge this ruling. Management has concluded that it is not possible to determine
whether the claims experience to date is, or is not, an appropriate basis for estimating the total cost. Therefore given the inherent uncertainty that exists
as BP pursues all available legal options to challenge the ruling, including rights of appeal to challenge the decision, and the higher number of claims
received and higher average claims payments than previously assumed by BP, which may or may not continue, management has concluded that no
reliable estimate can be made of any business economic loss claims not yet received or processed by the DHCSSP. Therefore the potential cost of such
claims is not provided for and is disclosed as a contingent liability. See Note 36 for further information.
In January 2013, the States of Alabama, Mississippi and Florida formally presented their claims to BP under OPA 90 for alleged losses including
economic and property damage as a result of the Gulf of Mexico oil spill. BP is evaluating these claims. The State of Louisiana has also asserted similar
claims. The amounts claimed, certain of which include punitive damages or other multipliers, are very substantial. However BP considers the
methodologies used to calculate these claims to be seriously flawed, not supported by the legislation and to substantially overstate the claims. Claims
have also been presented by various local governments which are substantial in aggregate and more claims are expected to be presented. The amounts
alleged in the presentments for State and Local government claims total over $34 billion. BP will defend vigorously against these claims if adjudicated at
trial.
BP is named as a defendant in approximately 750 civil lawsuits brought by individuals, businesses, insurers and government entities in US federal and
state courts, as well as certain foreign jurisdictions, resulting from the Deepwater Horizon accident, the Gulf of Mexico oil spill, and the spill response
efforts. Further actions are likely to be brought. Among other claims, these lawsuits assert claims for personal injury or wrongful death in connection
with the accident and the spill response, commercial and economic injury, damage to real and personal property, breach of contract and violations of
statutes, including, but not limited, to alleged violations of US securities and environmental statutes. Until further fact and expert disclosures occur,
court rulings clarify the issues in dispute, liability and damage trial activity nears or progresses, or other actions such as further possible settlements
occur, it is not possible given these uncertainties to arrive at a range of outcomes or a reliable estimate of the liabilities that may accrue to BP in
connection with or as a result of these claims. Therefore no amounts have been provided for these items as at 31 December 2012. See Legal
proceedings on pages 162-171 for further information.
For those items not covered by the trust fund it is not possible to measure reliably any obligation in relation to other litigation or potential fines and
penalties except, subject to certain assumptions detailed in Note 36, for those relating to the Clean Water Act. There are a number of federal and state
environmental and other provisions of law, other than the Clean Water Act, under which one or more governmental agencies could seek civil fines and
penalties from BP. For example, a complaint filed by the United States sought to reserve the ability to seek penalties and other relief under a number of
other laws. Given the large number of claims that may be asserted, it is not possible at this time to determine whether and to what extent any such
claims would be successful or what penalties or fines would be assessed. Therefore no amounts have been provided for these items.
Under the settlement agreements with Anadarko and MOEX, and with Cameron International, the designer and manufacturer of the Deepwater Horizon
blowout preventer, with M-I L.L.C. (M-I), the mud contractor, and with Weatherford, the designer and manufacturer of the float collar used on the
Macondo well, BP has agreed to indemnify Anadarko, MOEX, Cameron, M-I and Weatherford for certain claims arising from the accident. It is therefore
possible that BP may face claims under these indemnities, but it is not currently possible to reliably measure any obligation in relation to such claimsand
therefore no amount has been provided as at 31 December 2012.
The magnitude and timing of possible obligations in relation to the Gulf of Mexico oil spill are subject to a very high degree of uncertainty as described
further in Risk factors on pages 38-44. Furthermore, for those items for which a provision has been recorded, as noted in Note 36, significant uncertainty
also exists in relation to the ultimate exposure and cost to BP. Any such possible obligations are therefore contingent liabilities and, at present, it is not
practicable to estimate their magnitude or possible timing of payment. Furthermore, other material unanticipated obligations may arise in future in
relation to the incident.
Financial statements 253
BP Annual Report and Form 20-F 2012
Financial statements