BP compensation fund is running out of money due to 2010’s spill

BP Plc said today that the $20 billion fund, set up to cover the cost of the Gulf of Mexico oil spill, will soon run out, as compensation claims have accelerated despite efforts from the company to limit what it claims are excessive payouts. The warning, which came as BPs second-quarter earnings fell short of analyst expectations, shows how the Deepwater Horizon spill in 2010 continues to hurt the company more than three years later.

According to the company cumulative charges to be paid from the fund totaled $19.7 billion at the end of the second quarter. The rest of the funds is likely to be fully used up by the third quarter, meaning it will thereafter have to make additional charges to its income statement. To date, BP has payed charges totaling $42.4 billion related to the spill.

Payments due to the spill have accelerated in recent months as BP has received large numbers of claims from businesses in southern states of the U.S. claiming for economic damages coming from the spill. The fund has paid out around $1 billion a quarter on average over the past nine months which is more than twice than what was paid in the preceding nine months.

BP has tried an aggressive effort to limit these payments, contending that the claims administrator has made some awards improperly to companies that werent hurt by the spill. Instead, a federal judge denied BPs request to freeze all payments under the claims scheme while an investigation is being carried out into alleged wrongdoing by lawyers who worked for the fund.

BP Chief Executive Bob Dudley on Tuesday called the companys underlying performance strong. “We are seeing growth in production from new high-margin projects and are making good progress in exploration and project delivery,” he said.

BPs replacement cost profit—a figure that excludes gains or losses in the value of inventories and is therefore equivalent to the net profit figure reported by U.S. oil companies—was $2.40 billion in the three months ended June 30, compared with $104 million in the second quarter of 2012. Earnings a year earlier were sharply reduced by some $3 billion in write-downs on the value of oil fields and refineries in the U.S.

The company said profit from operations declined 24% to $2.71 billion, due to a higher tax rate, lower oil prices, higher costs and lower post-tax income from Russia. This was well below average analyst expectations of $3.40 billion.

BP retreated 1% in yesterdays trade diminishing year to date gain to 3.55%.