Deepwater Horizon case blow for BP

BP's hopes of reaching a settlement over the Deepwater Horizon catastrophe were dealt a blow today after it emerged that the US Government intends to prove gross negligence or wilful misconduct at trial (Reuters)

BP's hopes of reaching a settlement over the Deepwater Horizon catastrophe were dealt a blow today after it emerged that the US Government intends to prove gross negligence or wilful misconduct at trial.

The US Department of Justice (DoJ) said the oil giant displayed a "culture of corporate recklessness", according to a memo filed with a New Orleans court, in the clearest sign yet that it will push for the maximum possible penalties following the spill in 2010.

BP said it will defend itself against the action, but the move is significant because it deals a blow to hopes of an out-of-court settlement and has the potential to escalate the cost of the disaster.

If the DoJ can establish gross negligence, it could mean up to 21 billion US dollars (£13.2 billion) in costs although there could also be further compensation to come.

BP's shares fell 4% today, wiping more than £3 billion from its market value.

Government lawyers said in the memo seen by the Financial Times: "The behaviour, words and actions of these BP executives would not be tolerated in a middling size company manufacturing dry goods for sale in a suburban mall.

"Yet they were condoned in a corporation engaged in an activity that no less a witness than former BP chief executive Tony Hayward himself described as comparable to exploring outer space."

The memo from the DoJ was in response to BP's settlement to compensate fishermen and other small claimants - known as the Plaintiffs Steering Committee (PSC) - to the tune of 7.8 billion US dollars (£4.9 billion).

A spokesman for BP said: "In its filing, the US Government made clear that it does not oppose the settlement reached by BP and the PSC resolving economic loss and property damage claims stemming from the Deepwater Horizon oil spill.

"Other issues raised by the Government simply illustrate that disputes about the underlying facts remain. BP believes it was not grossly negligent and looks forward to presenting evidence on this issue at trial in January."

A trial for the civil case is currently set for January.

Jonathan Jackson, head of equities at Killik & Co, said: "This news is disappointing, and may mean the delay of the removal of a long-term shadow that has hung over the shares."

However, he pointed out that the strongly worded memo may simply be posturing from the DoJ as it tries to put more pressure on BP to offer more to settle out of court.

Recent reports have suggested that BP was hoping to pay less than 15 billion US dollars (£9.4 billion), while the DoJ was asking for 25 billion US dollars (£15.7 billion), he added.

PA