* Shares down 4 percent after DoJ filing
* Deal window closing as U.S. election, court date loom
* Tens of billions of dollars ride on outcome
* Analyst revives BP break-up suggestion
By Sarah Young and Sinead Cruise
LONDON, Sept 5 Hopes BP can settle early
out of court on liability for its 2010 U.S. Gulf oil spill
looked forlorn on Wednesday after U.S. prosecutors laid out a
legal case for gross negligence on which tens of billions of
In the two years that have passed since the spewing Macondo
deepwater well was capped, the Department of Justice (DoJ) has
made it clear BP may have a gross negligence case to answer -
implying a potential $21 billion fine on top of other payments,
some already made, others yet to be determined.
The British oil company has been vehement in denying such
liability for the United States' worst offshore environmental
disaster, which killed 11 people and poured crude into the sea
for months. It repeated that position after the DoJ filing on
Nevertheless, the parties have been in talks about a
multi-billion dollar settlement that could cover outstanding
liabilities, and two months ago the Financial Times raised
expectations there was a deal in the air by reporting that BP
was hoping to pay $15 billion to put the case behind it, while
the DoJ was holding out for $25 billion.
The window of opportunity for a deal before the November
presidential election and ahead of a trial scheduled to start in
January has narrowed since then, and now investors see the
weight of uncertainty on the British oil company's share price
sticking around for a long time to come.
"The market was hoping that some sort agreement would be
reached, either before the presidential elections or ahead of
the trial," said Ivor Pether, a fund manager at Royal London
"We don't know when or whether they will reach agreement,
but the aggressive language in today's DOJ statement might well
reduce the chances of a swift settlement."
BP shares were down 4 percent on Wednesday morning at 419
pence after 39 pages of DoJ court papers homed in on a key well
pressure test, saying the way it had been "so stunningly,
blindingly botched in so many ways, by so many people,
demonstrates gross negligence".
Uncertainty over whether BP can continue to operate in
Russia, and whether it can even exit its business there at a
decent price, have combined with the oil spill wrangle to put
BP's share valuation based on earnings at a discount to the
sector in Europe, even though it is the second largest next to
"While these (DoJ) accusations are not entirely new or
surprising, they appear to be a firming of the DoJ language,"
said Credit Suisse analyst Kim Fustier in a note.
"This suggests to us that a settlement acceptable to BP is
not imminent, and lowers BP's chances of settling in the low end
of the $15-25 billion range. Hence, if it cannot get to a
satisfactory agreement we think it might be best for BP to
continue to litigate, which would maintain the Macondo overhang
for longer than we'd hoped... We believe a settlement or $20
billion or less would be a positive."
BREAKUP TALK REVIVED
Pressure for closure on the spill and in Russia is something
chief executive Bob Dudley has become used to since he took over
from Tony Hayward in the aftermath of the spill.
And on Wednesday, one analyst revived suggestions that the
company should be broken up to release underlying value on the
"We re-iterate that the best outcome for long suffering BP
shareholders, and indeed the only credible route to unlock our
increased SoTP (sum-of-the-parts) value of 732 pence, is a
demerger of remaining assets starting with the U.S.," said
Investec analyst Stuart Joyner in a note.
That valuation is more than 68 percent higher than BP's
current share price based on Tuesday's closing price of 437
pence, and suggests there could be $90 billion of hidden value
in a stock valued at around $132 billion. Other analysts'
calculations based on pre-Macondo comparisons with rival Shell
have put total lost value at between $60 and $70 billion.
"BP died when it failed to cap the Macondo spill in the
first few days," said Joyner. "The CEO did a good job of saving
BP from forced liquidation, but we do not believe he can revert
to its pre-Macondo strategy."