Mitsui & Co. Steps Up, Accepts Partial Blame For Gulf Oil Spill

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May 20, 2011

BP PLC (BP.LN, BP) scored a victory in its efforts to force other companies involved in last year’s disastrous Gulf of Mexico oil spill to cough up a share of the costs as Mitsui & Co. Ltd. (8031.TO, MITSY)–which had a 10% interest in the blown-out Macondo well–agreed to pay the U.K. oil giant nearly $1.1 billion.

The move has important legal implications for BP because it marks the first time another company has acknowledged that BP is not exclusively to blame for the disaster, according to a person close to the situation. It could put pressure on other firms implicated in the accident to settle with BP.

BP said it had reached a $1.065 billion settlement with Mitsui, resolving all claims against the Japanese company and its subsidiaries related to the Deepwater Horizon disaster. BP shares rose about 3% in midday trading in London; they remain about 30% below pre-Gulf-disaster levels.

In a statement, BP said the move showed Mitsui had recognized the findings by the Presidential Commission investigating Deepwater Horizon that the accident was the result of “oversights and outright mistakes by multiple parties and a number of causes.”

It was also an acknowledgment, BP said, of the conclusions of the U.S. Coast Guard that “the safety management systems of both Transocean Ltd. (RIGN.VX, RIG) and its Deepwater Horizon rig had significant deficiencies that rendered them ineffective in preventing the accident.”

The settlement with Mitsui represents an about-face by the Japanese company, which has until now accused BP of negligence and denied liability for any of the oil spill clean-up costs.

Its decision could put pressure on Anadarko Petroleum Corp. (APC), which held the remaining 25% interest in Macondo, to settle. Anadarko has so far refused to pay its share of costs. A spokesman for the company said its position “remains consistent with our previous statements,” adding that it viewed BP’s willingness to reach settlement with Mitsui as “a positive step.”

Analysts at Deutsche Bank said Mitsui’s move shows it “does not have confidence its claim that BP acted with gross negligence would be upheld.” It said it “seems reasonable” to expect that Anadarko, Transocean and Halliburton Co. (HAL) which did the cementing job on the Macondo well, will reach similar agreements.

In its statement, BP said it had agreed to indemnify Mitsui’s U.S. affiliates–MOEX Offshore 2007 LLC and MOEX USA Corp.–for compensatory claims arising from the accident, though its indemnity excludes civil, criminal and administrative fines and penalties.

“Mitsui, through MOEX USA Corporation, is showing great corporate citizenship in standing behind its affiliate and making a contribution to meet the costs of this tragic accident,” said Bob Dudley, BP’s chief executive. “We call on the other parties involved in the Macondo well to follow the lead of the MOEX and Mitsui parties.” BP said it was working to ensure that Transocean, Halliburton and Anadarko “contribute appropriately” to costs.

The settlement is a win for BP, but it accepted much less than the $2.144 billion it had billed Mitsui for. Since the disaster occurred, BP has been sending monthly invoices to MOEX Offshore, the Mitsui subsidiary through which it owned the 10% stake in Macondo, for reimbursement of spill-related costs.

The person close to the situation said BP had agreed to a lower price because Mitsui had “first mover advantage” as the first company to settle with BP. The low figure also reflected the fact that the Japanese company was effectively “judgement-proof” in the U.S.: MOEX Offshore, the special-purpose vehicle through which it bought the stake in Macondo, contained no other assets and so technically it had no ability to pay fines and other costs. Mitsui, the parent company, decided in the end that “this was a perilous position to take vis-a-vis the U.S. government and BP,” the person said.

In a statement, Mitsui said that the settlement with BP had “significantly limited its exposure” in the Deepwater Horizon affair and “reduced the risk and uncertainty for its shareholders.” “Doing so will also make it possible for Mitsui to focus on the further growth of its business,” it said.

-By Guy Chazan, The Wall Street Journal

Photo via NASA

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