BP 2012 Annual Report Download - page 169

Additional disclosures 167
BP Annual Report and Form 20-F 2012
Each agreement provides that class members will be compensated for their
claims on a claims-made basis, according to agreed compensation protocols
in separate court-supervised claims processes. The compensation protocols
under the Economic and Property Damages Settlement provide for the
payment of class members’ economic losses and property damages. In
addition many economic and property damages class members will receive
payments based on negotiated risk transfer premiums (RTPs), which are
multiplication factors designed, in part, to compensate claimants for
potential future damages that are not currently known, relating to the
Incident. The Economic and Property Damages Settlement and the Medical
Benefits Class Action Settlement are not an admission of liability by BP. The
settlements are uncapped except for economic loss claims related to the
Gulf seafood industry under the Economic and Property Damages
Settlement and the $105 million to be provided to the Gulf Region Health
Outreach Program under the Medical Benefits Class Action Settlement.
As part of its monitoring of payments made by the court-supervised claims
processes operated by the Deepwater Horizon Court Supervised Settlement
Program (DHCSSP) for the Economic and Property Damages Settlement,
BP identified multiple business economic loss claim determinations that
appeared to result from an interpretation of the Economic and Property
Damages Settlement Agreement by that settlement’s claims administrator
that BP believes was incorrect. This interpretation produced a higher
number and value of awards than the interpretation BP assumed in making
the initial estimate. Pursuant to the mechanisms in the Economic and
Property Damages Settlement Agreement, the claims administrator sought
clarification from the court on this matter and on 30 January 2013, the court
initially upheld the claims administrator’s interpretation of the agreement.
On 6 February 2013, the court reconsidered and vacated its ruling of 30
January 2013 and stayed the processing of certain types of business
economic loss claims. The court lifted the stay on 28 February 2013. Other
business economic loss claims have continued to be paid at a higher
average amount than previously assumed by BP in determining its initial
estimate of the total cost. On 5 March 2013, the court affirmed the claims
administrator’s interpretation of the agreement and rejected BP’s position as
it relates to business economic loss claims. BP strongly disagrees with the
ruling of 5 March 2013 and the current implementation of the agreement by
the claims administrator. BP intends to pursue all available legal options,
including rights of appeal, to challenge this ruling.
BP initially estimated the cost of the Settlements, including claims
administration costs, to be approximately $7.8 billion (including the $2.3-
billion commitment to help resolve economic loss claims related to the Gulf
seafood industry). During the third quarter 2012, BP increased its estimate
of the cost of claims administration by $280 million, and during the fourth
quarter by a further $400 million as described in Financial statements – Note
36 on pages 236-239 herein. Subsequently, management has continued to
analyse the business economic loss claims in the period since 5 February
2013 to gain a better understanding of whether or not the number and
average value of claims received and processed to date are predictive of
future claims (and so would allow management to estimate the total cost of
the Settlements reliably). Management has concluded based upon this
analysis that it is not possible to determine whether this claims experience
to date is, or is not, an appropriate basis for determining the total cost.
Therefore, given the inherent uncertainty that exists as BP pursues all
available legal options to challenge the recent ruling and the higher number
of claims received and higher average claims payments than previously
assumed by BP which may or may not continue, management has
concluded that no reliable estimate can be made of any business economic
loss claims not yet received or processed by the DHCSSP.
BP’s current estimate of the total cost of those elements of the
Settlements that can be estimated reliably, which excludes any future
business economic loss claims not yet received or processed by the
DHCSSP, is $7.7 billion. If BP is successful in its challenge to the court’s
ruling, the total estimated cost of the Settlements will, nevertheless, be
significantly higher than the current estimate of $7.7 billion, because
business economic loss claims not yet received or processed are not
reflected in the current estimate and the average payments per claim
determined so far are higher than anticipated. If BP is not successful in its
challenge to the court’s ruling, a further significant increase to the total
estimated cost of the Settlements will be required. However, there can be
no certainty as to how the dispute will ultimately be resolved or
determined. To the extent that there are insufficient funds available in the
Trust fund, payments under the PSC settlement will be made by BP
directly and charged to the income statement.
Significant uncertainties exist in relation to the amount of claims that are
to be paid and will become payable through the claims process. There is
significant uncertainty in relation to the amounts that ultimately will be
paid in relation to current claims, and the number, type and amounts
payable for claims not yet reported. In addition, there is further uncertainty
in relation to interpretations of the claims administrator regarding the
protocols under the Economic and Property Damages Settlement and
judicial interpretation of these protocols, and the outcomes of any further
litigation including in relation to potential opt-outs from the settlement or
otherwise. While BP has determined its current best estimate of the cost
of those aspects of the Settlements that can be measured reliably, it is
possible that the actual cost could be significantly higher than this
estimate due to the uncertainties noted above. In addition, a provision will
be re-established for remaining business economic loss claims and the
estimate will increase as more information becomes available, the
interpretation of the protocols is clarified and the claims process matures,
enabling BP to estimate reliably the cost of these claims. For more
information, see Financial statements – Note 36 on pages 236-239 of this
report.
All class member settlements under these agreements are payable under
the terms of the Trust. Other costs to be paid from the Trust include State
and Local government claims, state and local response costs, natural
resource damages and related claims, and final judgments and settlements.
The Trust may not be sufficient to satisfy all of these claims including those
under the settlement agreements. Should the Trust not be sufficient,
payments under the settlement agreements would be made by BP directly.
The Economic and Property Damages Settlement provides for a transition
from the Gulf Coast Claims Facility (GCCF) to a new court-supervised
claims programme, to administer payments made to qualifying class
members. A court-supervised transitional claims process was in operation
while the infrastructure for the new settlement claims process was put in
place. During this transitional period (now concluded), the processing of
claims that have been submitted to the GCCF continued, and new
claimants submitted their claims. BP agreed not to wait for final approval
of the Economic and Property Damages Settlement to pay claims. The
economic and property damages claims process is under court
supervision through the settlement claims process established by the
Economic and Property Damages Settlement.
Under the Economic and Property Damages Settlement, class members
release and dismiss their claims against BP not expressly reserved by that
agreement. The Economic and Property Damages Settlement also
provides that, to the extent permitted by law, BP assigns to the PSC
certain of its claims, rights and recoveries against Transocean and
Halliburton for damages with protections such that Transocean and
Halliburton cannot pass those damages through to BP. Under the Medical
Benefits Class Action Settlement, class members release and dismiss
their claims against BP covered by that settlement, except that class
members do not release claims for Later-Manifested Physical Conditions.
On 2 May 2012, the court overseeing the federal multi-district litigation
proceedings pending in New Orleans (MDL 2179) issued orders
preliminarily and conditionally certifying the Economic and Property
Damages Settlement Class and the Medical Benefits Settlement Class
and preliminarily approving the proposed Economic and Property
Damages Settlement and the proposed Medical Benefits Class Action
Settlement. Under US federal law, there is an established procedure for
determining the fairness, reasonableness and adequacy of class action
settlements. Pursuant to this procedure, an extensive notice programme
to the public was implemented to explain the settlement agreements and
class members’ rights, including the right to “opt out” of the classes, and
the processes for making claims. The court set a deadline of 31 August
2012 (later extended to 7 September 2012) for class members objecting
to the Economic and Property Damages Settlement and/or the Medical
Benefits Class Action Settlement to file their objections with the court and
a deadline of 1 October 2012 (later extended to 1 November 2012) for
class members to opt out of the Economic and Property Damages Class
and/or the Medical Benefits Settlement Class. The Deepwater Horizon
Court Supervised Settlement Program (DHCSSP), the new claims facility
operating under the frameworks established by the Economic and
Additional disclosures