Processing Magazine

Appeals court to hear BP case on alleged Deepwater Horizon claims fraud

July 22, 2013
<photocredit>Michael Watkins/iStockphoto/Thinkstock</photocredit>

BP is trying to cut the amount of money it will have to pay out in compensation to businesses and individuals for damage caused after the 2010 Gulf of Mexico oil spill. The company is seeking to minimize its liability for the incident, insisting that many claims have been exaggerated and even made up by businesses in the Gulf of Mexico.

According to federal estimates, as many as 4.9 million barrels of crude oil spilled after the explosion of the Deepwater Horizon rig, operated by BP. The rig was pumping oil from the Macondo well, located over a mile below the surface, about 50 miles off the coast of Louisiana. Approximately 4.1 million barrels entered the Gulf, it was estimated.

However, BP issued a report last month claiming that the actual amount of crude oil that was discharged from the well was 3.26 million barrels, while up to 2.46 million barrels of oil entered the Gulf, FuelFix reported. Based on these findings, BP requested a preliminary injunction that would suspend all payments related to the spill and called for an independent investigation of claims. The first hearing at an appeals court is scheduled for today.

The U.S. Environmental Protection Agency calculated that the British oil giant is facing Clean Water Act fines of about $17.6 billion, assuming that the company is found grossly negligent by a district court. However, if BP's newest calculations are taken into account the company's maximum bill would come in at $10.6 billion, experts estimate.

In a bid to tackle fraud, the company opened a hotline for "people who want to do the right thing" and report instances of fraud, exaggerated claims or corruption. BP hopes that the hotline will help it dispute fraudulent settlement claims that Gulf businesses have launched. This is not the first attempt by the company to encourage people with information regarding fraud to come forward. Last month it took out full-page advertisements in the New York Times, the Wall Street Journal and the Washington Post.

Theodore Olson, attorney for BP, told an appeals court last week that exaggerating the impact from the spill and miscalculating damages to businesses in the Gulf would be "irreparable injustice." Regardless of what people think of BP, fraud is unfair to all those Gulf-based restaurants, hotels and other businesses that made genuine claims, he pointed out.

So far, almost $4 billion has been paid out to more than 44,000 eligible claimants, according to the New York Times. The company initially believed that total compensation to Gulf businesses would amount to $7.8 billion, but later increased that estimate to $8.2 billion.

In the aftermath of the Macondo well discharge the British oil company had to divest some of its assets but, despite that, between 2010 and 2012 its sale of oil and gas fields generated about $38 billion and as of March 2013 the company reported some $28 billion in cash.