This could be good news for oil major

THAT the US government is suing BP should come as no surprise to even casual observers of President Obama’s administration. Fresh from a bruising defeat in the US mid-terms, Obama was unlikely to miss out on a spot of foreign multinational-bashing.

Oddly enough, Halliburton – the US oil major responsible for cementing at the site – isn’t being sued. The Department of Justice says other companies could be targeted in due course, but we can’t help thinking that Halliburton’s American pedigree gives it an advantage over British-born BP.

Although the lawsuit wasn’t entirely unexpected, yesterday’s sell-off saw BP lose 1.4 per cent. That reaction was likely overdone.

Under the Clean Water Act, the eventual fine for BP would be levied at a rate of between $1,100 and $4,300 a barrel. However, for prosecutors to achieve a fine at the upper limit, they would have to prove that BP had acted with gross negligence. Unless the findings that have emerged from a plethora of enquiries are challenged by the US – something that hasn’t happened so far – gross negligence will be hard to prove.

For that reason, we think a fine in the range of $5bn to $6bn is most likely, depending on the number of barrels that have actually been spilled (itself a matter of hot debate). BP is disputing official estimates, which put the number of leaked barrels at 4.9m; it reckons the true total is in fact somewhere between 20 and 50 per cent lower.

Counter-intuitively, this could actually be good news for BP. Not only does it remove the uncertainty surrounding the US administration’s intentions, but it also promises to resolve questions of liability. Anadarko and Mitsui, BP’s partners with a third share in the well between them, are also being sued, as is Transocean, the operator. None of these parties have admitted liability but the lawsuit could clarify whether they are culpable or not. That would allow BP to try to recover a significant portion of its costs.