Unless an accord was reached over the weekend, the initial multi-district litigation (MDL) trial centering on the Macondo well explosion in April 2010 is scheduled to begin Monday in New Orleans. Sources said late last week the defendants were attempting to come to terms with lawyers representing thousands of plaintiffs.

The trial was delayed last week by U.S. District Judge Carl Barbier apparently to give defendants and the Plaintiffs Steering Committee (PSC) more time to negotiate a settlement with U.S. prosecutors.

“BP and the PSC are working to reach agreement to fairly compensate people and businesses affected by the Deepwater Horizon accident and oil spill,” the parties stated last week. “There can be no assurance that these discussions will lead to a settlement agreement.”

A settlement would be in BP’s best interests, according to Oppenheimer energy analyst Fadel Gheit. Negotiations now are in a “critical stage” and there is a “70-80%” chance that a settlement may be reached before trial. He noted that BP management has said it is “ready and willing” to settle if the terms were “fair.” And BP has done “exactly what it said it intended to do…and more” by setting up the $20 billion Deepwater Horizon Oil Spill Trust Fund in agreement with the U.S. government. It’s also pledged to make additional payments of $1.25 billion every quarter until the end of 2013.

“I think it’s good news for BP,” Gheit said of a possible out-of-court settlement. “Any resolution for outstanding claims is positive for BP. It would take the risk off the stock.” Once the Macondo settlement is behind it, BP is “going to be a much smaller company, a smaller operation. But it’s still a very viable company.” BP would continue to be the “second largest producer” after ExxonMobil Corp., and it would remain “the largest producer in the Gulf. It employs 30,000 people in this country. So BP’s here to stay.”

Transocean Ltd., which owned the Deepwater Horizon, said last week it has set aside $1 billion for liability claims, which may indicate that it too is negotiating a settlement.

“We believe the company’s $1 billion charge for Macondo litigation matters likely indicates the potential settlement amount, which we expect to be announced in the coming days,” Barclays Capital analyst James West wrote in note to clients. Transocean’s total liability costs are estimated at around $3 billion, he noted.

A settlement with the PSC would not mean that BP’s legal troubles are behind it. The U.S. government said BP violated the Clean Water Act (CWA), Oil Pollution Act and other federal laws following the Macondo blowout. BP may be liable for up to $17 billion if it is found negligent for its preparation and response to the oil spill. States directly imparted by the spill — Alabama, Florida, Louisiana and Mississippi — also have sued the producer. The federal government also is conducting a criminal investigation, which is separate from the MDL civil case.

Some operators involved in the Macondo and Deepwater Horizon operations already have reached a partial or complete court settlement, including Weatherford International and Mitsui Ltd. However, Cameron and Anadarko Petroleum Corp. have settled compensatory claims with BP, but they may be liable for civil penalties under the CWA and other federal laws.

In addition, BP also has cross-complaints pending with Halliburton Ltd. and Transocean, which both claim that BP should be held solely responsible for the tragic incident because their contracts indemnified them from liability for an accident. BP, they have noted, made all of the key decisions regarding the well.

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