BP Reaches Estimated $7.8 Billion Deal With Spill Victims

03-14-2012 // Brian Swint - Bloomberg News

This excerpt is from Bloomberg

Oil at the highest price since 2008 is increasing BP Plc (BP/)’s available cash as it negotiates a final bill with the Obama administration to pay for damages caused by the worst U.S. spill.

The soaring price for crude that helped Chief Executive Officer Bob Dudley rescue BP from the brink of collapse may figure into talks with the U.S. government, potentially the biggest claimant in the Deepwater Horizon accident, according to Barclays Plc. The U.K. oil producer estimates its earnings rise $350 million a year for every $1 gain in Brent crude, which has jumped $41 a barrel to $126 since the April 20, 2010, tragedy.

BP has been in talks with the Department of Justice to settle pollution claims that can reach as much as $17.6 billion, a person familiar with the discussions said last month. The company set up a $20 billion trust and has already agreed to a $7.8 billion settlement with residents and businesses.

“The oil price may well affect attitudes on both sides,” said Ivor Pether, a fund manager at Royal London Asset Management, who holds BP stock. “The DOJ doesn’t want to be seen as soft on BP given near-record U.S. gasoline prices, but high oil prices also give BP scope to pay a few extra billion.”

BP has set aside $3.5 billion for the federal government claim. President Barack Obama faces re-election this year with Republicans blaming him for rising fuel prices charged by petroleum companies.

David Nicholas, a spokesman for London-based BP, declined to comment on settlement talks. DOJ spokeswoman Tracy Schmaler also had no comment. BP Chief Financial Officer Brian Gilvary said March 4 that $37.2 billion remains the company’s best estimate for the cost of the spill.

Cost of Gasoline

Obama is trying to overcome hits to his popularity from rising gas prices to win the Nov. 6 election. Regular gasoline at the pump, averaged nationwide, has climbed 16 percent this year to $3.792 a gallon as of March 10, according to AAA data.

The Justice Department can and should consider a company’s ability to pay when calculating civil and criminal penalties, said John Kostyack, a vice president at the National Wildlife Federation, an environmental lobby group in Washington.

“BP continues to reap this enormous windfall that comes from the run up in oil prices.” Kostyack said in a telephone interview. “That is a strong indicator that it has the ability to pay a very substantial civil and criminal penalty.”

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