BP Plc has agreed to pay $175 million to settle claims by U.S. investors that its managers lied about the size of the 2010 Gulf of Mexico oil spill in order to prop up its stock price. This settlement removes the oil giant’s last major overhang from the disaster. The investors, who blamed BP for massive losses when the true scope of the spill was revealed, had sought as much as $2.5 billion. The settlement avoids a trial that was set for this month in Houston federal court.
The settlement announcement came shortly after a ruling by U.S. District Judge Keith Ellison to narrow the evidence that could have been presented to a jury. The decision, which would have benefited BP at trial, limited the management statements that investors could claim affected the stock price. BP shares fell sharply – by more than 40 percent – in the weeks after the April 2010 disaster. It became very clear the company couldn’t immediately contain the spill. More than 4 million barrels of oil escaped into the Gulf of Mexico during the 87 days BP took to control the well.
The investors’ lawsuit, led by the public employee pension funds of New York and Ohio, revolved around statements made shortly after the Deepwater Horizon drilling rig blew up in April 2010. Those statements also were central to BP’s agreement in 2012 to pay $525 million to resolve claims by the Securities and Exchange Commission (SEC) that the London-based company underestimated the size of the spill to bolster stock prices. BP also pleaded guilty to a felony count of obstruction of Congress related to spill estimates. Jennifer Freeman, a spokeswoman for the New York Comptroller’s Office, observed: “Investors saw their stock prices plummet after the Deepwater Horizon explosion. This settlement helps compensate investors for their losses.”
BP has set aside $56.4 billion so far for the disaster, according to an April regulatory filing. The company’s cumulative pre-tax charge to earnings doesn’t show a complete picture of the company’s financial hit from the spill. As part of funds paid out to stop and clean up the spill and compensate victims, BP has agreed to a series of settlements with different groups damaged by the disaster. The amounts remaining to be paid under all of these agreements is uncertain. The following is a review of those settlements:
In 2012, BP agreed to pay $4 billion to resolve criminal charges tied to pollution violations, misleading Congress and manslaughter for the deaths of 11 rig workers killed in the initial explosion. In a separate settlement that year, BP agreed to pay private property and economic-loss claims by hundreds of thousands of individuals and businesses in the five Gulf states, although it excluded whole categories of business claims by casinos, real estate developers and financial institutions. As many of these claims remain unevaluated and unpaid, BP said in April its estimate of $12.9 billion will likely be “significantly higher” once all private claims are processed and paid.
Last year, BP settled the most expensive part of its spill litigation by agreeing to pay $20.8 billion over the next 17 years to cover additional pollution violations, financial losses and natural resources damages suffered by state, local and national government entities.
In the recent ruling Judge Ellison said that investors could sue to recover for losses caused by low-ball flow rate estimates BP managers made public during the first two weeks of the spill. Company officials repeatedly estimated that 1,000 to 5,000 barrels of oil were gushing from the well daily, when internal calculations pegged the flow rate at more than 10 times higher. Judge Ellison rejected investors’ theory that BP kept propping up the share price with other statements that downplayed the financial impact a longer, wider spill would have on the company, saying that’s not the same thing as misrepresenting the flow rate.
Judge Ellison previously allowed investors who bought ADR shares immediately after the disaster to sue as a group or class action, while rejecting claims by investors who bought before the incident. BP says that the $175 million settlement won’t cover other securities-related claims. This case is In Re BP Plc Securities Litigation, which is in the U.S. District Court, Southern District of Texas (Houston).
Source: Margaret Cronin Fisk and Laurel Brubaker Calkins with Bloomberg News
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