BP PLC reached a record US$18.7 billion agreement to settle all federal and state claims from the 2010 Deepwater Horizon oil spill after an abrupt strategy shift in May to reopen talks, three people close to the matter said.
The company had been committed to fighting the claims in court after negotiations fell apart last year, but falling oil prices and a federal judge’s rulings putting a potential US$13.7 billion price tag on Clean Water Act violations helped motivate BP to change tactics in May, said the people, who asked not to be identified because the negotiations were private.
“BP was staring down a gun barrel and had to find some way to settle this,” said David Berg, a Houston trial lawyer who has tracked the spill litigation, but is not involved in it.
“The total amounts are staggering, [though BP was able to] hammer the government into a payout plan that stretched out over several years,” he said.
The agreement, while preliminary, specifies the payments are to be spaced out over as long as 18 years. A record US$5.5 billion is to cover federal penalties under the Clean Water Act, topping the previous high of US$1 billion. Louisiana, Mississippi, Alabama, Florida and Texas are also to receive payouts for harm from the disaster, which claimed 11 lives and caused the worst offshore oil spill in US history.
“This agreement will resolve the largest liabilities remaining from the tragic accident,” BP chief executive Bob Dudley said on Thursday in a statement. “For the United States and the Gulf in particular, this agreement will deliver a significant income stream over many years for further restoration of natural resources and for losses related to the spill.”
BP shares gained 4.4 percent to £4.374 in London as investors welcomed the news that the company had reached an agreement.
The settlement does not resolve the Clean Water Act lawsuit brought against Anadarko Petroleum Co, BP’s partner in the Macondo well. US District Judge Carl Barbier, who was considering the fine against BP before Thursday’s settlement, ruled earlier ruled that Anadarko was also liable.
The US has asked Barbier to fine Anadarko more than US$1 billion.
BP reserved US$3.5 billion for the Clean Water Act case. It resisted updating the provision even after Barbier said BP acted with gross negligence and ruled that 3.19 million barrels had spilled, exposing it to as much as US$13.7 billion in fines under the act’s formula.
“We don’t know what the quantum of the court ruling would have been, but it certainly wouldn’t have been over the next 17 years that we now have to pay that amount. So US$5.5 billion — and the high end could have been US$13.7 billion — over that many years would appear to be a satisfactory conclusion,” BP chief financial officer Brian Gilvary said on a conference call on Thursday.
The accord is set to cost BP more than US$20 billion when other payments for natural-resource damages, as well as other state and federal claims are factored in. It also comes on top of billions already spent on response, cleanup and compensation, pushing BP to raise its budget to pay for the spill to US$53.8 billion.
That still might not be enough.
“It is realistic to price BP’s total cost, including all remaining claims that haven’t been covered by settlements, at US$70 billion — all in,” Berg said.
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