It's not widely known that the largest, most expensive, and most accelerating component of the BP (NYSE:BP) oil spill settlement is compensation for business economic losses that covers the entire states of Louisiana, Mississippi, Alabama, West Florida, and certain counties in Texas. I believe the economic damage from this settlement could potentially bring BP (and maybe even Halliburton (NYSE:HAL) and Transocean (NYSE:RIG) who are also being sued) to its knees. As such, I find it important to track the growing claims on the website maintained by the third party administrator and updated each business day to get insight on this. For a more detailed background on my thoughts and analysis on the settlement and how it could affect BP, please see my first article here and follow on article here.
As each day and week passes, the public will have more and more information regarding the financial impact that settlement will have on BP. I continually monitor that website to develop a more factual speculation about the future and what it means for BP.
|Date||Payment Offers||Total Amount||Average Offer|
|6/6 - 3/26||2,112||$571,322,402||$270,513|
|6/13 - 6/6||161||67,907,104||421,783|
|6/21 - 6/14||238||95,991,130||403,324|
The bottom numbers are formula driven from the top numbers. Last week I penned concern about what seemed to be larger spike than normal in the average claim and the total payout. While this past week saw a small dip in the average versus last week, it was certainly consistent. I also hesitated to draw conclusions about such a small number of claims of 161, but now we have data another 238 claims from last week and the average claim is not going down by much. It appears that this higher number may be here to stay, perhaps as larger claims tend to take more time to put together.
The payout official predicted a surge in claims being filed. For this week, we're seeing a 48% bump up from 161 to 238, and 41% increase in the total amount of claims offers. If this trend continues to accelerate, BP could be in trouble. So far though with around 41 weeks left until the settlement expiration date, if you take the $96 million number from last week and multiply it by 41, it only comes out to $3.9 billion, which is a relatively small figure to BP and one it can easily afford without too much harm at all to its shareholders. Of course, last week I said the annualized amount is only $3 billion. This week it's $3.9 billion.
The statistics will require constant monitoring. I predicted that number could snowball up to $93 billion, but so far the current rate isn't even close to that yet. That may change, however, as larger and larger companies become part of the statistics. As an example, Denny's Corporation (NASDAQ:DENN) has dozens of locations in qualifying zones, each of which would be potentially entitled to funds in the settlement. Restaurants, according to the terms of the settlement, are classified under the "tourist industry" and are therefore entitled to the highest multipliers. Nowhere in DENN's 10Q or 10K is the BP oil spill settlement mentioned under "Legal Proceedings." This is just one of hundreds of examples of chains that could potentially be showing up in the months ahead as having a huge settlement much bigger than the averages.
I will continue to monitor the statistics closely. I believe, for now, BP is a sell unless and until more information becomes available that suggests the settlement will not be "irreparably harmed" as BP warned would happen if it loses its appeal of the settlement. The next appeal attempt is set for July 8, which should also be paid close attention to.