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By Alison Sider
A federal judge in New Orleans agreed late Tuesday to a stipulation that could reduce BP Plc.'s ( BP ) maximum penalty under the Clean Water Act in connection with the Deepwater Horizon accident by as much as $3.5 billion.
Under the stipulation agreed to by the Justice Department and BP, and signed by U.S. District Judge Carl Barbier, 810,000 barrels of oil that were captured from the leaking well in the Gulf of Mexico before reaching the ocean won't count toward any potential fines under the act.
The amount of oil that spilled into the Gulf will, along with other factors, determine how much BP pays in fines under the Clean Water Act. If the judge determines BP was "grossly negligent" instead of simply negligent, the company could be subject to fines as high as $4,300 per barrel of oil spilled, although other factors will also be considered. Those determinations will be made during two upcoming trials, one of which is scheduled to begin next week.
The two sides agreed that 810,000 barrels of collected oil "never came into contact with any ambient sea water and was not released into the environment in any way" other than via approved flaring, according to Judge Barbier's order.
Thomas Claps, an analyst with Susquehanna Financial Group, wrote in a note that the order is a "significant pre-trial battle" that reduces BP's "worst case scenario" fines under the act by about $3.5 billion.
"Therefore, according to U.S. Government flow rate estimates of approximately 4.9M barrels of oil spilled, the 'worst- case scenario' of [more than $21 billion] in fines for BP has now been reduced to approximately $17.6 billion, a significant decrease," Mr. Claps wrote.
BP argues the size of the spill is significantly less, and at most at 3.1 million barrels.
--Tom Fowler contributed to this story.
Write to Alison Sider at alison.sider@dowjones.com
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