BP's Mega-Billions In Oil Spill Payouts And Accounting Charges Are Back On

| About: BP p.l.c. (BP)

I almost feel like a broken record when I say "BP loses in court again." Ever since my first article entitled The Oil Spill Settlement Could Bring BP To Its Knees, BP has been back to court again, and again, and again. And it has been losing again, and again, and again. So here we are. BP loses again.

In what seems like the final appellate ruling, unless BP wants to get beaten by the Supreme Court too, the judges handed yet again a harsh ruling keeping the settlement in place. BP in this case was asking the court to require each of the hundreds of thousands of claimants to provide direct proof that the spill affected each of them individually and present that evidence to the court. The judges, not surprisingly, ruled against BP. The judges speaking for the majority cited among other things that the whole point of a settlement is to avoid "trial-type evidence" in the first place.

From page 16 of the ruling:

BP brought this litigation, which has evolved into BP asking the courts to interpret the settlement agreement and consent decree to require certain economic-loss claimants to prove, with trial-type evidence, that their losses were caused by the oil spill, regardless of whether they have met the definitions and formulas provided by the settlement agreement and consent decree.

And from page 12:

The difficulties of a claimant's providing evidentiary support and the claims administrator's investigating the existence and degree of nexus between the loss and the disaster in the Gulf could be overwhelming. The inherent limitations in mass claims processing may have suggested substituting certification for evidence, just as proof of loss substituted for proof of causation. Relevant to this concern is that BP did not object in this appeal to a decision made in October 2012 that the claims administrator was not to look at potential alternative causes for claimants' losses.

The judges also ordered payments on claims to begin again. Previously, payments had been halted several months back pending the outcome of this ruling. Due to the uncertainty of the outcome, BP itself stopped recognizing even one cent of potential future claims in its financial statements. Losses it had been estimating on financial statements were halted at the same time as the payout halt. In fact, BP actually reversed and awarded itself on paper $400 million back:

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.

BP had previously reserved $20 billion for various payouts regarding the spill. $19.6 billion of it got used. There is now a potential avalanche waiting BP in terms of fresh claims coming. As you can see from this outdated link from back when the payouts were temporarily halted months ago, there was around $1.14 billion in payments already approved and pending that haven't been paid out. From that same link, there are 96,484 more claims submitted in the system that haven't received notice yet of payment.

With the average business economic loss claim well over $200,000 a pop, it adds up fast to an amount that's quite large, over an additional $20 billion right there. These numbers don't even include the last five months or so of claims that are still in the process of preparation by the businesses themselves, their attorneys, and their accountants plus new claims yet to join. Add it together, and it's going to be many tens of billions of dollars especially considering many large businesses were waiting for the rulings to finish before submitting a claim. As an example, Ruth's Hospitality Group (NASDAQ:RUTH) still hasn't filed a claim according to its filings. I estimate that RUTH could get nearly $3 million in settlement money.

Last but not least, BP raised its dividend back in November right at the same time it reversed a $400 million loss into a gain and stopped putting any liability whatsoever for the business economic loss claims on its financial statements. Now that BP will start incurring many billions in cash charges here in 2014, will BP lower its dividend in response? Look for it.

Good luck to all.

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.

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