After years of litigation, BP Exploration & Production, Inc. and BP America Production Company (collectively, "BP") entered a class-wide settlement ("BP Settlement") that covers most businesses located in the Gulf Coast Region, including parts of Texas, all of Louisiana, Mississippi and Alabama, and the Gulf Coast of Florida from Pensacola to Key West (see map1 below, which generally highlights covered "Zones").

The Settlement comprises an initial fund of $20 billion ("Settlement Fund"), which is subject to increase depending on the amount of claims paid.

Your business may be entitled to make a claim against the Settlement Fund. This alert explains how we can assist in determining whether your business is covered by the BP Settlement.

Generally, there is a four-step claim submission process that requires determining:

  1. whether the claimant is a qualifying entity;
  2. whether the qualifying entity’s home office (or at least one of its branch offices/facilities/stores) is located within a prescribed Zone;
  3. whether the qualifying entity satisfies one of the various revenue threshold tests; and,
  4. if so, determining the amount of the claim.

Industries/Businesses Covered by the Settlement

Since most businesses are covered, it is easier to list, in broad terms, the industries that are not covered:

  • Fund, financial trusts, or other financial vehicles
  • Gaming
  • Insurance
  • Oil and gas
  • Defense contractors or subcontractors (if 50% of revenue is derived from defense contracts)
  • Real estate developers
  • Selling or marketing BP-branded fuel at anytime from April 20, 2010, through April 16, 2012

Within these broad categories of excluded industries there are unexpected exceptions—entities that are nonetheless covered by the BP Settlement. If your company or one of its branch offices is located in one of the Zones, it is a potential claimant. The BP Settlement applies to all non-excluded companies that have either a (1) home office in a Zone; or (2) a branch office/facility/store located in a Zone, even if the home office is located elsewhere. For multi-facility businesses with home offices located within a Zone, the analysis can be done on a corporate-wide or facility-by-facility basis, whichever provides the higher claim. For multi-facility businesses with home offices not located within a Zone, the analysis must be performed on a facility-by-facility basis.

Areas Covered by the Settlement

The shaded map below shows Zones covered by the BP Settlement. As it reflects, there are four Zones: A, B, C, and D. Each Zone is treated differently when determining whether an entity meets the threshold criteria for submitting a claim, and, if so, the amount of the claim.

Click here to view map.

Revenue Threshold Tests For Determining Eligibility

There are various revenue threshold tests used to determine whether a qualifying entity is eligible for a claim. Most simply put, an analysis is performed to determine the percentage of top line revenue decrease in three consecutive months during the period May 2010 through December 2010, compared to the same three consecutive months in 2009, an average of the years 2008 and 2009, or an average of the years 2007 through 2009. If there was a sufficient decrease in revenue under any combination, (depending on the Zone, the range is from 5 percent to 15 percent), the analysis then turns to whether there was a sufficient increase in top line revenue in 2011 for those same three months (depending on the circumstances, the range for the increase is from 0 percent to 10 percent). Once an entity satisfies the revenue threshold test, a two-step compensation test is used to determine the amount of the claim.

Compensation Tests

Step 1 of the compensation test determines the amount of decrease in variable income based on predetermined categories of fixed and variable costs. Step 2 is a formulaic analysis used to determine the amount of estimated incremental income an entity would have made in the period May 2010 through December 2010 (or some portion thereof) had there been no spill. The amounts determined in Steps 1 and 2 are then added together to determine the total claim.