I have been recently covering the past, current, and future economic damage to BP (NYSE:BP) due to the business economic loss portion of its settlement. Based on my analysis, it appears the settlement amounts are starting to spiral out of control. Not surprising, BP launched what looks like a dirty offensive this week that comes off at least to me like a two-fold desperate panic attack strategy consisting of harassing hundreds of lawyers with empty, baseless threats while trying to invoke guilt and sympathy from the public.
BP's panic-stricken attack has a twofold strategy:
1. Cause fear to the public to try to scare them away from filing claims that they would be entitled to under the settlement. BP took out three full page ads in the Wall Street Journal, NY Times, and the Washington Post trying to make potential claimants feel guilty. The ad says "Whatever you think about BP, we can all agree that it's wrong for anyone to take money they don't deserve."
In another part of the ad, BP says:
And it's unfair to everyone in the Gulf - commercial fishermen, restaurant and hotel owners, and all the other hard-working people who've filed legitimate claims for real losses
Seriously? BP knows better than anybody that the settlement isn't capped (which of course explains the panic). Filing a claim takes nothing away from commercial fishermen, restaurant, or hotel owners. Actually the seafood compensation program settlement is already closed anyway. It seems to be quite deceptive on BP's part since the deadline is already long passed, on January 22, 2013.
2. BP has also been sending hundreds of letters to lawyers warning that clients who receive compensation based on excessive or false claims will have to pay the money back if the company is successful in its court appeal on July 8. BP is appealing again? Really? Does it really think it has a prayer at winning this appeal? Tampa-based attorney Kevin McLean put it quite well:
They went into this with a legion of attorneys and a legion of accountants to put this [deal] together and they knew exactly what they were getting into when they negotiated and signed this settlement agreement. The settlement agreement has been interpreted correctly by the trial judge.
James Roy and Stephen Herman, two of the lead plaintiffs' lawyers who helped broker the deal with BP, warned Cantor that his letter "misstates the law and violates BP's obligations under the Settlement Agreement."
"No process exists to alter the amount of an award after it has been paid," they wrote in a letter dated Monday. "It is obvious that the timing and tone of your letter is an attempt to discourage claimants from pursuing claims under the Settlement Program."
Simply put, BP has buyers' remorse because it guessed wrong on the cost of a deal, which it - for nearly two years - negotiated, co-authored, agreed to and sought Court approval of. The notion that BP is somehow trying to portray itself as a victim is preposterous.
Based on those statements, it doesn't seem like BP has a snowball's chance in hell at its July 8th appeal. The timing is interesting indeed, as noted in the table below as the acceleration of claims amounts continues to snowball. When I first started writing about BP less than 3 weeks ago, the annualized rate was looking at around $3 billion more to come. Now it's already up to around $5 billion after this week.
|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|
|6/27 - 6/15||217||90,534,209||417,208|
Note: the period of 6/27 - 6/15 includes only 4 business days.
As stated in my most recent article on BP, 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 up article here. My tracking of data has shown that the economic settlement claims have been quickly accelerating in both average claim amount and total value of claims each week, with the data in the table toward the bottom of the article. In addition, I have added this week's data as of the date and time of the writing of this article, and the prorated claims have jumped another 18% this week over last week again with again a very high average claim amount. When Friday's data comes out, that final week over week percentage change may differ materially.
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.