BP Fears Takeover Bid as Oil Spill Compensation Costs Escalate

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By Geetha Pillai | May 16, 2013 4:39 PM EST

UK major BP is increasingly worried about the possibility of a takeover bid from another oil company, as it struggles under the strain of mounting compensation costs in the aftermath of the Gulf of Mexico oil spill.

According to a BBC report, BP has complained it is suffering huge losses as rules for assessing "business economic loss" are systematically abused, forcing the company to hand over large amounts of money to firms that suffered no harm from the Deepwater Horizon spill three years ago.

The company believes that most of the claims amount to "fictitious and inflated losses", leading to undeserved payments. BP has been ordered to pay "hundreds of millions of dollars" to business establishments in the region by the US authorities, and according to the company such payments could stretch to billions of dollars.

BP is reportedly planning to seek the help of the prime minister and chancellor to persuade the US government to intervene in the matter. US President Barack Obama will attend the G8 Summit in the UK next month and BP expects David Cameron to raise the issue with his counterpart during the meeting, according to the BBC.

In an appeal document recently filed in court, BP argued that the present compensation system will deliver "irreparable harm" to the company and push the company into serious financial crisis if it is not swiftly reformed.

BP reported a profit of $4.2bn (£2.6bn/€3.2bn) in the January-March period, down 9% from $4.67bn reported in the first quarter of 2012. This compares with analysts' estimates of $3.27bn.

The oil giant expects the compensation costs to shoot up above the $8.2bn already set aside for the purpose by the company. BP said that the amount will be "less", if it is successful in its appeal against the assessment procedures, but will be a "further significant increase to the total estimated cost", if it loses the appeal.

BP and its partners in the Deepwater Horizon rig, Transocean and Halliburton, are facing a trial in New Orleans that will determine the extent of compensation they have to pay for the spill, which lasted between April and July 2010.

The first phase of the trial, to determine the share of blame between BP and its partners, ended on 17 April. The second phase of the trial due to start in September will determine the quantity of oil lost, which the US government puts at 4.9 million barrels, and the extent of the compensation.

In 2010, the Deepwater Horizon oil rig exploded in the BP-owned Macondo Prospect, spilling millions of barrels of oil into the surrounding waters over a three-month period.

Eleven workers on the rig died in the explosion and environmental devastation slicked its way through the waters, poisoning marine life as well as a number of clean-up workers and Gulf of Mexico residents.

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