Mitsui & Co. Ltd. agreed to pay the U.K. oil company nearly $1.1 billion
BP PLC scored a modest victory in its efforts to force other companies involved in last year’s disastrous Gulf of Mexico oil spill to cough up a share of the clean-up costs as Japan’s Mitsui & Co. Ltd. agreed to pay the U.K. oil company nearly $1.1 billion.
The move increases the likelihood that another partner in the well, Anadarko Petroleum Corp., will also settle. Anadarko Chief Executive James Hackett has previously indicated the Texas oil company was prepared to reach a compromise with BP “under the right circumstances.”
The settlement with Mitsui, which held a 10% stake in the project, marks the first time another company has acknowledged that BP is not exclusively to blame for the Deepwater Horizon disaster. It represents an about-face for the Japanese trading firm, which had previously claimed that BP’s negligence absolved it of liability for the costs of the spill. Anadarko has taken a similar position.
Analysts said it reduced the likelihood that BP will be found guilty of gross negligence, an outcome that would substantially increase the amount of environmental fines and penalties it is liable for over the Gulf of Mexico spill, the worst in U.S. history.
But the agreement with Mitsui also represents something of a compromise for BP. Mitsui agreed to pay it $1.06 billion, less than half the $2.14 billion that BP had billed it, and the deal frees it of all Macondo damage claims.
BP is trying force other companies to share the costs from last year’s demise of the Deepwater Horizon rig.
Using the same calculus, Anadarko, which had a 25% interest in Macondo, might be able to settle for around $2.66 billion, much less than some investors had expected. Anadarko’s shares rose 5%, or $3.61, in New York Stock Exchange trading Friday.
BP said the settlement showed Mitsui had recognized the findings by the Presidential Commission investigating the disaster that it was the result of “oversights and outright mistakes by multiple parties and a number of causes.”
It was also an acknowledgment, BP said, of the conclusions of the U.S. Coast Guard that “the safety management systems of both Transocean [Ltd.] and its Deepwater Horizon rig had significant deficiencies that rendered them ineffective in preventing the accident.”
Analysts at Deutsche Bank said Mitsui’s move shows it “does not have confidence its claim that BP acted with gross negligence would be upheld.” It said it “seems reasonable” to expect that Anadarko, Transocean and Halliburton Co., whose well-cementing job on the Macondo well failed, will reach similar agreements.
Anadarko’s Mr. Hackett said this week that the company was prepared to consider a settlement over spill-related claims, but only if it included all the companies involved. He also acknowledged Anadarko investors were at a “disadvantage” due to the “overhang” of potential Macondo-related liabilities.
“But we also realize that our investors would like us to consider some sort of approach that’s perhaps a compromise from that, Mr. Hackett said.” An Anadarko spokesman added Friday, “we view BP’s willingness to reach a settlement with MOEX as a positive step.”
BP said it agreed to indemnify Mitsui’s U.S. affiliates, MOEX Offshore 2007 LLC and MOEX USA Corp., for compensatory claims brought by private businesses and property owners.
But the affiliates are still on the hook for their share of criminal and administrative fines and penalties. Analysts at Credit Suisse said such fines would most likely be resolved in a global settlement that would include BP, Transocean, Anadarko and Mitsui, the four defendants named in a civil lawsuit filed in December by the Department of Justice.
Mitsui “is showing great corporate citizenship in standing behind its affiliate and making a contribution to meet the costs of this tragic accident,” said Bob Dudley, BP’s chief executive. BP said it was working to ensure that Transocean, Halliburton and Anadarko “contribute appropriately” to costs.
Swiss-based Transocean said the agreement hasn’t changed its view of culpability. “Government investigations have rightly concluded that the Macondo incident was caused by a failure of the cement in the well, which resulted in extreme conditions that exceeded the design parameters of the [blowout preventer],” it said. “Financial arrangements made between BP and its Macondo partners have no bearing on these facts.”
Since the disaster occurred in April last year, BP has been sending monthly invoices totaling $2.14 billion to Mitsui for reimbursement of spill-related costs.
A person close to the situation said BP had agreed to a lower figure because Mitsui had “first mover advantage” as the first company to settle with BP. The lower sum also reflected the fact that the Japanese company was effectively “judgment-proof” in the U.S.: it had bought its 10% interest in Macondo through a special-purpose vehicle that contained no other assets and technically had no ability to pay fines and other costs. Mitsui, the parent company, decided in the end that “this was a perilous position to take viz-a-viz the U.S. government and BP,” the person said.
In a statement, Mitsui said that the settlement with BP had “significantly limited its exposure” in the Deepwater Horizon affair and “reduced the risk and uncertainty for its shareholders.”
Source: The Wall Street Journal