Replies to post #818 on The Rising Influence of Rising Affluence

[DewDiligence]

APC’s investors are evidently nervous that the BP spill could leave APC on the hook for substantial liabilities. APC’s $177.5M of insurance coverage, consisting of $710M of nominal coverage pro rated @25% for APC’s equity interest in the project, will cover only a couple of months of APC’s share of the cleanup operation at the estimated rate at which liabilities are being accrued, according to the Q&A on APC’s 1Q10 CC. (The insurance policy has a $60M deductible, so APC’s share of that is $15M.)

Comments?

[DewDiligence]

It sounds like APC is thinking of suing BP. From APC’s UBS webcast on 26-May-2010 (at minute 28:58):

http://cc.talkpoint.com/ubsx001/052410a_lv/?entity=14_GHGQ6RI

“It goes without saying…Anadarko’s going to do everything we
can to protect our shareholders to the degree that we possibly
can. And so you’ll see that come through as all this is understood
and appreciated and we get the emergency behind us.”

—Charles Meloy, SVP, Operations

What else could this possibly mean?

[DewDiligence]

APC/BP:

I do not know what an agreement between joint owners in an oil rig looks like, but I would be slightly surprised if, as between the owners, the non-operating partner had the same third party liability as the operating partner.

The operating agreement between the project owners (BP, APC, and Mitsui) presumably indemnifies the non-operating partners from liabilities caused by the operator’s gross negligence. If APC does sue BP, I would expect the outcome of the suit to hinge on this contract provision.

[DewDiligence]

BP, Mitsui settle Macondo liability for $1.1B, which is about half of what BP had “billed” Mitsui for its 10% pro rata share of the project’s total liability:

http://online.wsj.com/article/SB10001424052748704904604576334651408891730.html

Mitsui was able to obtain a favorable settlement because it has few US-based assets that could have been attached in a legal judgment. APC, which held a 25% equity stake in the project, does not have this tactical advantage and it may still be on the hook for as much as $5B in Macondo liabilities.

APC has contended that it owes nothing because BP was guilty of gross negligence (#msg-51471898), but this is undoubtedly posturing for a favorable settlement.

BP recently sued RIG, HAL, and CAM: #msg-62346477.

[DewDiligence]

APC is paying BP $4B and waiving its 25% equity in the Macondo project to settle litigation arising from the Deepwater Horizon spill.

This is an excellent settlement for APC, IMO. Mitsui, which was only a 10% partner in the Macondo project, forked over $1.1B to settle with BP in May 2011 (#msg-63407944). APC’s posturing that it should owe BP nothing due to BP’s “gross negligence” (#msg-51471898) evidently worked.

The only drawback for APC shareholders is that most of the settlement will apparently not be covered by insurance (#msg-49838523).

[DewDiligence]

APC still has Deepwater Horizon liabilities, says US government:

http://www.wsj.com/articles/anadarko-to-fight-oil-spill-fine-1421610192

When a federal judge ruled last fall on who was to blame for the 2010 Deepwater Horizon disaster, he didn’t point a finger at Anadarko Petroleum Corp. But the energy company is facing a pollution penalty of as much as $3.5 billion because it owned 25% of the oil well drilled by the ill-fated rig, and would have gained a quarter of the crude it pumped if the well hadn’t exploded.

Now Anadarko…is set to battle federal prosecutors in a trial beginning Jan. 20. It will argue alongside BP PLC, which operated the well known as Macondo. A judge will determine how much each company should pay per barrel spilled.

Anadarko paid BP $4 billion in 2011 [#msg-68073418] to release it of any liability from third-party claims and certain environmental fines. But federal and appellate judges have held that Anadarko is still liable under the Clean Water Act.

…Anadarko has set aside $90 million to pay for any penalty. It tried to settle the case for that amount last July, but was rebuffed by the U.S. government.