LONDON (Reuters) – Hopes BP can settle early out of court onliability for its 2010 U.S. Gulf oil spill looked forlorn onWednesday after U.S. prosecutors laid out a legal case for grossnegligence on which tens of billions of dollars hang.

In the two years that have passed since the spewing Macondodeepwater well was capped, the Department of Justice (DoJ) has madeit clear BP may have a gross negligence case to answer – implying apotential $21 billion fine on top of other payments, some alreadymade, others yet to be determined.

The British oil company has been vehement in denying suchliability for the United States' worst offshore environmentaldisaster, which killed 11 people and poured crude into the sea formonths. It repeated that position after the DoJ filing onTuesday.

Nevertheless, the parties have been in talks about amulti-billion dollar settlement that could cover outstandingliabilities, and two months ago the Financial Times raisedexpectations there was a deal in the air by reporting that BP washoping to pay $15 billion to put the case behind it, while the DoJwas holding out for $25 billion.

The window of opportunity for a deal before the Novemberpresidential election and ahead of a trial scheduled to start inJanuary has narrowed since then, and now investors see the weightof uncertainty on the British oil company's share price stickingaround for a long time to come.

“The market was hoping that some sort agreement would bereached, either before the presidential elections or ahead of thetrial,” said Ivor Pether, a fund manager at Royal London AssetManagement.

“We don't know when or whether they will reach agreement, butthe aggressive language in today's DOJ statement might well reducethe chances of a swift settlement.”

BP shares were down 4 percent on Wednesday morning at 419 penceafter 39 pages of DoJ court papers homed in on a key well pressuretest, saying the way it had been “so stunningly, blindingly botchedin so many ways, by so many people, demonstrates grossnegligence”.

Uncertainty over whether BP can continue to operate in Russia,and whether it can even exit its business there at a decent price,have combined with the oil spill wrangle to put BP's sharevaluation based on earnings at a discount to the sector in Europe,even though it is the second largest next to Royal Dutch/Shell.

“While these (DoJ) accusations are not entirely new orsurprising, they appear to be a firming of the DoJ language,” saidCredit Suisse analyst Kim Fustier in a note.

“This suggests to us that a settlement acceptable to BP is notimminent, and lowers BP's chances of settling in the low end of the$15-25 billion range. Hence, if it cannot get to a satisfactoryagreement we think it might be best for BP to continue to litigate,which would maintain the Macondo overhang for longer than we'dhoped… We believe a settlement or $20 billion or less would be apositive.”

BREAKUP TALK REVIVED

Pressure for closure on the spill and in Russia is somethingchief executive Bob Dudley has become used to since he took overfrom Tony Hayward in the aftermath of the spill.

And on Wednesday, one analyst revived suggestions that thecompany should be broken up to release underlying value on thebusiness.

“We re-iterate that the best outcome for long suffering BPshareholders, and indeed the only credible route to unlock ourincreased SoTP (sum-of-the-parts) value of 732 pence, is a demergerof remaining assets starting with the U.S.,” said Investec analystStuart Joyner in a note.

That valuation is more than 68 percent higher than BP's currentshare price based on Tuesday's closing price of 437 pence, andsuggests there could be $90 billion of hidden value in a stockvalued at around $132 billion. Other analysts' calculations basedon pre-Macondo comparisons with rival Shell have put total lostvalue at between $60 and $70 billion.

“BP died when it failed to cap the Macondo spill in the firstfew days,” said Joyner. “The CEO did a good job of saving BP fromforced liquidation, but we do not believe he can revert to itspre-Macondo strategy.”