Was BP grossly negligent?

Robert Peston

The significance of the Obama administration's decision to sue BP and four other business over the Deepwater Horizon explosion and oil spill is that the US Justice Department may try to prove gross negligence on the part of BP.

Because if BP were found to be grossly negligent, the costs for BP of the debacle could rise very significantly indeed, for two reasons.

First, it could potentially add almost $16bn or more than £10bn to the civil penalties BP would have to pay under the US Clean Water Act.

Second, it would make it much harder (perhaps impossible) for BP to recover costs it is incurring in the clean up and restitution from its co-owners of the Macondo Well, Anadarko and Mitsui.

BP says it remains confident that it was not guilty of gross negligence. But if it is wrong, the $39.9bn or £25bn it has set aside to cover the costs stemming from the disaster will prove to be too little.

A further source of uneasiness for BP's shareholders is the statement by the US Attorney General Eric Holder that under the Oil Pollution Act he is intending to prove "that these defendants are responsible for government removal costs, economic losses and environmental damages without limitation."

For once, the verdict of the market in a few minutes may be instructive.

Update 0838: Investors plainly believe that the nature of the Department of Justice's case against BP hasn't increased potential liabilities for the company in a fundamental way.

BP's shares have fallen 2.5% this morning to 465p - which takes the edge off a recent strong run in BP shares.

Source: BBC
www.bbc.co.uk