U.S., BP Headed for Showdown Over Liability

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The Obama Administration ratcheted up its demands on Wednesday that BP PLC cover all costs stemming from the Gulf of Mexico oil spill, including millions of dollars in salaries of oil-industry workers laid off because of the federal moratorium on deepwater drilling.

The sudden increase in BP's potential liabilities—along with growing evidence that even more oil than expected is gushing from BP's crippled well—helped send BP's shares plummeting almost 16% in New York, to $29.20. The stock has lost close to half its value, more than $82 billion, in the seven weeks since the spill started.

"There is no objective justification for this share price movement. BP faces this situation as a strong company," said BP chief executive Tony Hayward in an interview at the company's Houston crisis center. "We have significant capacity and flexibility in dealing with the cost of responding to the incident, the environmental remediation and the payment of legitimate claims."

BP didn't comment directly on the latest demand from Washington. But it is expected to argue that under the Oil Pollution Act of 1990, BP is liable only for the direct costs of the clean-up and couldn't be held responsible for the lost wages of oil workers. "Somewhere a line has to be drawn," a company official said.

Several legal experts said they couldn't think of any law or precedent that would allow the U.S. to try to recover damages from BP on behalf of rig workers thrown out of work by a government moratorium on deep offshore drilling.

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"I'm not aware of anything out there that would allow (President Obama) to latch onto a legal remedy on behalf of the out-of-work workers," said Benjamin A. Escobar Jr., a Houston-based labor and employment attorney for Beirne Maynard & Parsons. "I think he's in for a real court fight on these issues."

The White House has a different view. "The moratorium is a result of the accident that BP caused. It is an economic loss for those workers," Press Secretary Robert Gibbs said. "Those are claims that BP should pay."

The meltdown in BP's stock suggested investors are bracing for a worst-case scenario. BP says it has spent well over $1 billion on the spill response. The total clean-up and legal costs to BP could reach some $33 billion, though these might not fully materialize for a decade, say Goldman Sachs analysts.

Continue reading at The Wall Street Journal