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BP Trial Delayed: Court Ruling “Biggest Risk” to BP Stock Says Analyst

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Almost two years after the Deepwater Horizon oil rig spewed nearly five million barrels of oil into the Gulf of Mexico, making it the largest oil spill in U.S. history, BP (BP) is close to cutting a $14 billion settlement deal with thousands of plaintiffs.

A massive civil lawsuit brought against BP, the oil giant who had leased the faulty Macondo deepwater oil well, was scheduled to begin Monday but was postponed one week by U.S. District Judge Carl Barbier. More than 120,000 plaintiffs are suing BP in the civil lawsuit, many of whom are local businesses and individuals impacted by the April 20, 2010 Gulf of Mexico spill.

A settlement deal would be in BP's best interest says Fadel Gheit, an oil analyst at Oppenheimer. In an interview with The Daily Ticker's Henry Blodget, Gheit says the London-based oil company has shown its willingness to settle with the Plaintiffs' Steering Committee, or PSC, a group comprised of plaintiffs' attorneys.

A settlement with the PSC does not mean BP's legal troubles are over. The U.S. government has sued BP for violating the Clean Water Act and other laws, which could leave BP liable for up to $17 billion if a judge rules that BP was negligent in its preparation and response to the oil spill. The states directly affected by the spill - Louisiana, Mississippi, Alabama and Florida - have also opened lawsuits against BP.

On April 20, 2010 the Deepwater Horizon oil rig exploded in the Gulf of Mexico, killing 11 rig workers and injuring others. The fire burned for 36 hours and the Macondo well, located miles below the Gulf of Mexico, leaked 4.9 million barrels of oil before it was closed and sealed 89 days later.

BP has spent billions of dollars in cleanup and compensation since the Deepwater Horizon accident. According to the BP Sustainability Review 2010, the company has spent $17.1 billion on its response activities as of Dec. 31, 2010. BP also set up a $20 billion Deepwater Horizon Oil Spill Trust in agreement with the U.S. government and has said it is "committed to making additional payments of $1.25 billion each quarter until the end of 2013." BP agreed to a $4 billion settlement with Anadarko Petroleum Corp. last October. Anadarko owned a 25 percent stake in the Macondo well. BP is also suing and being sued by its drilling partners. The company estimates its total liability for the disaster is $40 billion.

Gheit says BP has sold off 15 percent of its assets to raise money for the cleanup, compensation and lawsuits costs. BP will emerge as a leaner, smaller company but still a viable one, he says.

"It's the largest oil and gas producer after Exxon and the largest operator in the Gulf of Mexico," Gheit notes. "BP is here to stay."

The company reported earlier this month that it made $7.7 billion in the last quarter of 2011 - a 38 percent increase from the previous year. In its earnings report, BP said it will be increasing its investment in oil exploration and production has increased. BP stock has fallen 30 percent since the April 2010 spill but has slowly bounced back. Gheit says a settlement announcement will push BP stock higher and expects it to trade between $55 and $60 a share over the next 12 months. An "unfavorable court ruling in connection with the Macondo oil spill" is the biggest threat to BP's stock right now, Gheit adds.