Can BP Disprove This Oil Spill Claim?

The civil trial of the largest accidental marine oil spill in the history of the petroleum industry is set to begin on Monday in New Orleans in front of a federal judge, but without a jury. Nearly three years have passed since Transocean’s (NYSE:RIG) Deepwater Horizon rig, under contract with BP (NYSE:BP), experienced a surge of gas that killed 11 workers and spewed 4.9 million barrels of oil into the Gulf of Mexico.

While the case could potentially take several months to resolve, as Reuters reported, several legal experts believe that a resolution with the U.S. Department of Justice could end the lawsuit as well. Sources told the publication that early testimony will likely establish the tone for any settlement negotiations, depending on the evidence presented.

Those involved in the trial include the well owner BP, rig owner Transocean, and cement services provider Halliburton (NYSE:HAL). They will face the Justice Department, several Gulf Coast states, and other plaintiffs.

In the past, BP has often settled civil cases before or during the trial. Four lawsuits were launched as the result of an explosion at its Texas City refinery, which killed 15 people, and all of the cases were settled with penalties amounting to $3.1 billion.

However, in the case of the April 2010 oil spill, the stakes are much higher; the well explosions and resulting spill harmed five state coastlines, prompted a six-month ban on oil and gas drilling in the Gulf of Mexico, and disrupted the livelihoods of fishermen and other coastal businesses.

BP has already made efforts to lower what could be a huge fine. The penalty that the Department of Justice could award BP under the U.S. Clean Water Act ranges from $1,100 to $4,300, if the company is found to have been grossly negligent. Using the maximum fine payable under the act, to calculate the worse possible scenario, BP could have faced penalties of as much as $21 billion. But Justice Department agreed earlier this week to lower the number of barrels of oil involved in the case after determining that the oil and gas producer had captured 810,000 barrels of crude before they spilled into the ocean.

The company has maintained that it will settle for “reasonable terms,” reported Reuters, but BP’s lawyer Rupert Bondy has made it clear that the company is facing “demands that are excessive and not based on reality,” in the upcoming trial.

BP has already committed $8.5 billion to plaintiffs in one settlement, paid $9 billion in other claims, and settled 14 criminal charges with a guilty plea and a fine of $4 billion. This has put a huge strain on the company: accounting provisions have totaled $42 billion, a figure that represents close to 30 percent of its stock market value. BP has sold assets worth $38 billion to cover its financial obligations, and these moves have cut $5 billion per year from its cash flow, which is a basic money-making measurement.

If BP is found to be “grossly negligent,” a key determination that will be made during the trial, its fine under the Clean Water Act could be as much as $17.5 billion based on the 4.1 million barrels that spilled into the Gulf and a maximum fine of $4,300 per barrel. But if BP is not found to be ”no more than negligent,” a $1,100-per-barrel fine will be used to calculate the company’s penalties. The company also faces damage claims of $34 billion made by Gulf Coast states.

To prove gross negligence, sources told Reuters that the prosecution must be able to present strong evidence of reckless and willful disregard for employee safety and the environment, a case that could be hard to make. According to the publication, Alabama Attorney General Luther Strange, who will represent the states in the trial, plans to show that the spill was “both predictable and preventable,” and that the company fostered a “culture of callousness.”

For their part, the companies involved have consistently argued that their mistakes do not amount to gross negligence.

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