BP may double oil spill pay-out

BP may agree to pay up to $25bn to settle all charges, including possible criminal charges, with the US government over the devastating Gulf of Mexico spill, according to an analyst at Morgan Stanley, double the figure the company has set aside.

Martijn Rats, head of European oil research at Morgan Stanley, predicted there was a 70-80 per cent possibility that BP would agree a deal on civil and criminal charges before the end of February, ahead of the start of the civil litigation over the accident.

Bob Dudley, BP’s chief executive, has repeatedly said that BP would be willing to settle, but not at any price. Asked about the possibility of a settlement earlier this week in London, Mr Dudley declined to comment, saying it was too sensitive a time to talk about it.

However, a person familiar with BP’s thinking said that the idea that the company was negotiating over a settlement worth about $25bn was “completely unfounded.” The person added: “There is no factual basis for the suggestion that there is discussion in that range.”

Some other analysts also cast doubt on whether BP would be willing to agree to pay that amount of money before the trial had even begun.

In his research note published on Thursday, Mr Rats said the main reason for his prediction of a settlement before the February 27 trial start date was “that both BP and the Department of Justice may find the outcome of the trial too unpredictable, and given the amounts involved, therefore too risky”.

Mr Rats’ estimate of a total pay-out of between $20bn-$25bn would cover all civil charges, criminal penalties and fines and exceeds the $12bn that BP set aside for these costs, he said. It is made up of three main assumptions:

● that BP will be fined up to $10bn in a civil charge under the Clean Water Act. Under the act a company can be fined between $1,100 and $4,300 a barrel for the amount of oil discharged into the water. The higher pay-out only comes if “gross negligence” is proven, something that BP has always denied

● that BP will face a charge of around $5bn to make good any natural resources damages

● that BP will face criminal charges from the Department of Justice and be fined “somewhere between $5bn and $15bn”

The likely pay-out would constrain BP’s ability to increase its dividend when it reports results for the full year on February 7, said Mr Rats in his analysis. The company, however, has the ability to pay a $20bn-$25bn settlement as it is sitting on a cash pile of more than $20bn.

Share in the company, which has not not made any provisions for any possible criminal charges, closed up 1.05p higher at 482.45p.