BP prepares for years of litigation

And so it begins.

BP (BP-N) has already been hit by a number of shareholder lawsuits over its Gulf of Mexico oil spill disaster. But the U.S. government’s announcement Wednesday that it was suing the oil company acted as the starter’s pistol for a litigation marathon that may last years.

It’s been pointed out many times that the Exxon Valdez disaster in 1989 took close to 20 years to wind its way through the courts. The BP case may not take that long but when one considers the number of affected parties, and the fact that the company will likely defend itself vigorously, it becomes clear various courts will be clogged with BP cases for years to come.

Today’s lawsuit may just be the tip of the iceberg for BP because civil and criminal probes continue in the U.S.

The U.S. government did not set a damage figure in its lawsuit. But the Clean Water Act allows the administration to seek as much as US$4,300 per barrel spilled. It is estimated 4.9 million barrels were spilled into the gulf. Multiply that by US$4,300 and you arrive at about US$21 billion. BP put US$20 billion into an escrow account at the government’s request so it seems the company may be pretty well covered for whatever damages the government is seeking.

BP has set aside US$40 billion in total to cover damages. Whether that figure is enough won’t be known until years down the road.

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