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BP Plc reached a record $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
re-open talks, according to three people close to the matter.
The company had been committed to fighting the claims in court after
negotiations fell apart in 2013. But falling oil prices and a federal
judge’s recent rulings putting a potential $13.7 billion price tag on
Clean Water Act violations helped motivate BP to change tactics in May,
said the people, asking not to be identified because 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 tracked the spill
litigation but isn’t 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.”
The agreement, while preliminary, specifies the payments will be
spaced out over as long as 18 years. A record $5.5 billion will cover
federal penalties under the Clean Water Act, topping the previous high
of $1 billion. Louisiana, Mississippi, Alabama, Florida and Texas will
also receive payouts for harm from the disaster, which claimed 11 lives
and caused the worst offshore spill in U.S. history.
Shares Rise
“This agreement will resolve the largest
liabilities remaining from the tragic accident,” BP Chief Executive
Officer Bob Dudley said in a Thursday 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.”
Shares gained 4.4 percent to 437.4 pence in London as investors welcomed news that the company had reached an agreement.
The company reserved $3.5 billion for the Clean Water Act case before
the trial began. It resisted updating the provision even after U.S.
District Judge Carl Barbier said BP acted with gross negligence and
ruled that 3.19 million barrels had spilled, exposing it to as much as
$13.7 billion in fines under the act’s formula.
“We don’t know what the quantum of the court ruling would have been,”
BP Chief Financial Officer Brian Gilvary said on a conference call on
Thursday. “But it certainly wouldn’t have been over the next 17 years
that we now have to pay that amount. So $5.5 billion, and the high end
could have been $13.7 billion, over that many years would appear to be a
satisfactory conclusion.”
$70 Billion?
The accord will cost BP over $20 billion when other payments for
natural-resource damages and other state and federal claims are factored
in. It also comes on top of billions already spent on response, clean
up and compensation, pushing BP to raise its budget to pay for the spill
to $53.8 billion. That still may not be enough.
“It is realistic to price BP’s total cost, including all remaining
claims that haven’t been covered by settlements, at $70 billion – all
in,” Berg said.
The agreement is the “largest settlement with a single entity in American history,” U.S. Attorney General Loretta E. Lynch said.
The agreement in principal will be subject to public comment before
court approval, according to the Justice Department press release.
