BP settlement with partner Mitsui & Co excludes fines and punitive damages

BP shares cost of oil spill in $1bn Mitsui deal

BP has won a battle with partner Mitsui to share the cost of the Gulf of Mexico oil spill.

Japanese trading house Mitsui has agreed to pay $1.1 billion towards the cleanup of America's largest ever offshore oil spill and possibly billions more in fines.

Its exploration unit MOEX owned 10 per cent of the Macondo well but had sought to avoid paying its share of the costs, claiming BP's negligence exempted it from this obligation.

It has now dropped this claim and analysts have said this weakened the case of 25 per cent well shareholder Anadarko Petroleum, which has also used the same argument.

"This is the first recognition by one of the partners that blame is shared and therefore the costs should be shared as well," Societe Generale analyst Irene Himona said.

"It is very significant because clearly now it means that BP can try and ensure that everybody else who is involved will also meet their obligations," she added.

BP's shares jumped 3.6 per cent on the news.

BP has estimated the cost of capping the well, cleaning up the damage and compensating those affected is over $41 billion, including fines, which analysts believe make up about $4 billion of the provision.

This suggests Mitsui is paying less than a third of its potential liability in respect of the actual damages - the cost of the clear-up, capping the leak and paying out to local businesses affected.

Anadarko could now be liable for almost $2.7 billion.

However, one source close to the matter said BP was likely to seek a higher rate of recovery from Anadarko than it received from Mitsui, which did not have a direct liability to pay since it invested through MOEX, which had few assets.

Anadarko on the other hand does have a direct legal liability as it has invested directly in the well.

"Anadarko, BP's other partner in the Macondo licence is likely to come under pressure to settle as well now," said Richard Griffith at Evolution Securities.

In addition to actual damages, fines and punitive damages could double the $41 billion bill, lawyers have said.

Even at the bottom end of the range for fines and with no punitive damages, Moex is now liable for around another $1 billion in payments, while it could be on the hook for much more, potentially reducing BP's worst case scenario by several billion dollars.

MOEX has now joined BP in blaming the accident principally on Transocean, the company which BP hired to drill the well, under BP's instruction. BP has sought to extract the full cost of the disaster from the Swiss-based driller.

Transocean's contract with BP indemnifies it against environmental damage but if BP can prove gross negligence, it can overrule this indemnity.

The Commission appointed by President Barack Obama to investigate the rig blast which led to the United States's worst ever spill said BP was responsible for most of the bad decisions on the rig.

Mitsui said it had no plan to change its forecast net profit or dividend in 2011/2012 after the settlement.

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