?as its 2014 3rd Q3. earnings drop

Gulf Oil spill

Gulf Oil spill

British Petroleum (BP) continues to suffer from the fallouts of the 2010 oil spill in the Gulf of Mexico.

The company?s third-quarter replacement cost profit was US$ 2, 385 million compared to US$3, 178 million at the same period last year, after adjusting its net charge for non- operating items of US$ 798 million and net favorable fair value accounting effect of 146 million both on a post-tax basis.

Underlying replacement cost profit for the third quarter 2014 was US$3037 million compared with US$3, 692million for the same period in 2013.

As a consequence of the Gulf of Mexico oil spill, the UK oil Companycontinues to incur various costs and has also recognized liabilities for future costs.

The company?s third quarter 2014 financial report cited by The Business Analyst, indicates that during the third quarter 2014, $314 million was paid out of the Deep-water Horizon Oil Spill Trust and qualified settlement funds (QSFs), including $289 million for claims payments, administrative costs of the Deepwater Horizon Court Supervised Settlement Program (DHCSSP) and other resolved items, and $25 million for natural resource damage assessment.

By  September 30, 2014, the aggregate cash balances in the Trust and the QSFs amounted to $6.0 billion, including $1.1 billion remaining in the seafood compensation fund which is yet to be distributed, and $0.9 billion held for natural resource damage early restoration projects.

In October 2014 federal and state Trustees issued final approval for the third phase of Gulf of Mexico restoration projects, totaling $627 million for 44 projects, funded as part of BP?s commitment to provide up to $1 billion for early restoration to expedite recovery of natural resources injured as a result of the oil spill. These projects are in addition to 10 other early restoration projects that are in place or under way.

A provision of $3,510 million was recognized in 2010 for estimated civil penalties under Section 311 of the Clean Water Act, which was determined by using the mid-point in the range of estimates for the number of barrels of oil spilled (3.2million barrels).  A penalty rate of $1,100 per barrel was applied, the statutory maximum penalty in the absence of gross negligence or wilful misconduct.

In September 2014, the district court issued its decision in the Phase 1 trial that the discharge of oil was the result of the gross negligence and willful misconduct of BP Exploration & Production Inc. (BPXP) and that BPXP is therefore subject to enhanced civil penalties. The statutory maximum penalty is up to $4,300 per barrel of oil discharged where gross negligence or willful misconduct is proven.

BP does not believe that the evidence at trial supports a finding of gross negligence and willful misconduct and intends to appeal the Phase 1 ruling. In the meantime BP has filed a motion with the district court to amend the findings in the Phase 1 ruling, to alter or amend the judgment, or for a new trial.

BP continues to believe that a provision of $3,510 million represents a reliable estimate of the amount of the liability if the appeal is successful and this provision, calculated on the basis of the previous assumptions, has been maintained in the accounts.

If BP is unsuccessful in its appeal, and the ruling of gross negligence and willful misconduct is upheld, the maximum penalty that could be imposed is up to $4,300 per barrel. Based on this penalty rate and the US government?s current estimate of the number of barrels spilled, the maximum penalty could be up to $18 billion.

Source: Ebenezer Sabutey || The Business Analyst

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