Contract With BP Has Clause To Limit Anadarko Liability-Source
June 16 2010 - 4:07PM
Dow Jones News
BP PLC's (BP) contract to operate the leaking Macondo well
contains a clause that could limit the liability of minority
partner Anadarko Petroleum Corp. (APC), a person familiar with the
agreement said.
The contract, the person said, is similar to others used in
offshore drilling in which the operator assumes the cost of
mistakes in case of gross negligence, the person said.
Anadarko, which owns 25% of the well, has seen its shares hit
hard in recent weeks as investors brace for the possibility that
the Houston-based company could be on the hook for a proportional
share of the costs resulting from the leak--an amount that could
reach tens of billions of dollars. The confirmation that the joint
operating agreement with BP contains a gross negligence clause
could substantially reduce the company's potential liability and
that of fellow minority partner Mitsui & Co. Ltd.
(8031.TO).
BP could be liable for 100% of damages if gross negligence is
proven, said Jacqueline Weaver, who teaches energy law at the
University of Houston Law Center. U.S. lawmakers said this week
that BP made decisions that increased the risk of a blow-out at the
well to save the company time or expense. BP didn't immediately
respond to requests for comment.
The uncertainty about Anadarko's liability underscores the
unprecedented nature of the crisis that began in April, when a
Transocean Ltd. (RIG) drilling for BP in the U.S. Gulf exploded and
sank, unleashing the largest offshore spill the country has ever
seen. BP so far has spent more than $1.6 billion dollars in
cleaning up the spill, and its ultimate liability could be much
higher. On Wednesday, the company agreed to establish a $20 billion
escrow account to pay for damages.
Anadarko said Wednesday it had been invoiced by BP for its share
of clean-up costs, although it didn't disclose the amount.
Analysts with investment bank UBS estimate that the total cost
of the operation could reach between $20 billion and $50 billion, a
figure based on what Exxon Mobil Corp. (XOM) paid for the 1989
Exxon Valdez spill. But the analysts said that if Anadarko ends up
paying a quarter of that cost, it could survive.
If Anadarko's liability comes in at the low end of the range, or
$5 billion, the company could "easily" afford it, UBS analyst
William Featherston said. Anadarko currently has $3.7 billion in
cash and an unused credit capacity of $1.3 billion. Additionally,
it has assets that are not producing cash in the onshore U.S. and
offshore Africa with an estimated value of $14 billion.
If the price tag is larger than that, Anadarko would have to
issue equity and sell a large percentage of its international and
U.S. Gulf of Mexico nonproducing discoveries. But even if it had to
pay $12.5 billion, the company will be able to bear the financial
burden, Featherston said.
Investors have been bracing for a worse outcome than what
analysts have imagined. Anadarko's shares have tumbled 40% since
April 20, the day the rig exploded. The decline sharpened last
week--Anadarko was down 19% on Wednesday alone--in a move that
Barclays Capital analysts said was "disproportionate" to the
highest amount of money Anadarko could be liable for. The stock was
trading Wednesday afternoon at $42.70, down 4.5% from the previous
session.
BP has said it won't be limited by the $75 million cap on oil
spill economic damages established under the Oil Pollution Act of
1990 and that it won't seek reimbursement from a federal trust
fund. But Anadarko has refrained from openly joining BP in that
stance: Spokesman John Christiansen said in an emailed statement
that the company will do what is "right" and that questions
regarding its liability will be answered "at the appropriate
time."
-By Isabel Ordonez, Dow Jones Newswires; 713-547-9207;
isabel.ordonez@dowjones.com
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