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Oil-giant BP hosted a legal seminar in London recently, outlining the expected time table of the Gulf of Mexico Macondo spill trial and its implications.Andy Langan of Kirkland & Ellis, BP’s chief lawyer on the Macondo disaster, told investors that trial and penalty announcements would likely come a year later than analyst forecasts of 2012-2013.
The bench trial, or a trial without a jury, will begin on February 27, 2012, and will be split into three phases. Each phase will likely last months, with substantial breaks between phases. The judge has the choice to release his findings after each phase, but Citi analyst Alastair Syme believes he will wait until the conclusion of the third and final phase.
That pushes a final announcement of fines to 2014, and payouts even further back if the company chooses to appeal.
- February 2012: Bench trial begins in New Orleans
- First Half 2012: First phase of trial, dealing with cause of accident
- Second Half 2012: Second phase of trial, dealing with well encasement/size of spill
- First Half 2013: Third phase of trial, dealing with spill containment
- End of 2013: Judgment announced
- 2014: Size of legal obligation (fines) are announced; Possible BP appeals to judgment
Citi also crunched the numbers on the effects of the judgment:
BP has also provided a simpler understanding to its current Macondo provisioning. The breakdown suggests the company currently provides for some US$12 billion of fines and economic compensation through the MDL 2176 legal process (split US$5bn fines and US$7bn compensation). Assuming that provisioning is right, then we view BP at a c. 5-10% discount to sector peers using 2013E multiples (4.6x 2013E EV/DACF). A finding of gross negligence could theoretically send the sums higher, perhaps by another US$10 billion on a worst case, eroding that entire projected discount.