Even as BP (NYSE:BP) faces potentially $90 billion in business economic loss claims for its oil spill, its stock continues to march to highs not seen since before the spill itself in addition to dividends paid out. It's almost as the company has made no provision at all in regards to its economic loss claims.
Oh wait, it hasn't. From BP's most recent conference call:
In addition, as a result of the recent Fifth Circuit ruling, that Bob will talk to shortly, we are now no longer providing for outstanding business economic loss claims offers that are yet to be paid. $400 million of previously provisioned business offers were therefore derecognized in the third quarter as they can no longer be measured reliably. We will continue to revisit this in each quarter.
Let me put this in English (no pun intended): BP's financials not only reflect, going forward, as if not a single dime in future claims will be paid out, but BP actually gave itself a $400 million on-paper gain by reversing a previous provision set aside. Throughout the conference call, BP questioned the fairness of the settlement itself (which it co-wrote and pushed for approval).
The Fifth Circuit has spoken
Perhaps BP thought an appeal would be won to get the settlement thrown out, as it hinted. BP was wrong. On Friday, in yet another harsh ruling against BP, the ruling stated among other things: "No case cited by BP… suggests that a district court must also safeguard the interests of the defendant, which in most settlements can protect its own interests at the negotiating table."
In other words, BP bringing up individual cases within the settlement that it deems as unfair is not the problem of the court. That was for BP to take care of before it signed the settlement. There are no so-called "fictitious claims" when those claims fit perfectly within BP's formulas in the settlement that determine who is in and who is out.
So what now?
Expect BP, if it intends to be more transparent with shareholders, to take on a large provision against future business economic loss payouts. While it's impossible to know the final total in advance, a conservative estimate is due I believe instead of painting a false rosy picture that does little other than temporarily bump up the share price. I've been stating for a long while now The Oil Spill Settlement Could Bring BP To Its Knees. In my first article I estimated the number to be $93 billion, around $3 billion more than BP has since admitted it may total.
I said it then, and I'll say it again: Perhaps if it's consequently brought to its knees, it will be poetic justice. BP wrote the sloppy settlement and failed to put a cap on it and is now struggling to correct its costly mistake. Only this time instead of trying to cap the oil well gushing out, it's trying to cap its cash balance from gushing out. And now it's trying to sweep this fact under the rug from shareholders, but it can't for much longer.
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.