BP Settle Oil Spill

BP will pay $18.7 Billion to Settle Oil Spill Claims

BP has agreed to pay US$18.7 billion to settle all federal and state claims and pollution penalty arising from the 2010 Deepwater Horizon oil spill in the Gulf of Mexico. BP was found to be grossly negligent during a project to drill an oil well to a record depth of 5 000m, in that they took shortcuts on quality and safety to save time and money.

If approved by a federal judge, the deal would conclude a monumental legal wrangle over the Deepwater Horizon disaster, which killed 11 crew members aboard the drilling rig when it exploded and caused the largest oil spill in U.S. history.

The agreement would avert years of litigation over the environmental impact of a spill that leaked millions of barrels of crude oil into the Gulf of Mexico over the course of three months and coated hundreds of kilometres of sensitive beaches, marshes and mangroves swamps with oil.

The settlement would add at least $10 billion to the roughly $44 billion BP has already incurred in legal and clean-up costs, pushing its grand total bill for the spill to nearly $54 billion, higher than all the profits it has earned since 2012.

The company will pay far less in fines—$5.5 billion of the settlement’s total—than the maximum $13.7 billion it faced under the federal Clean Water Act. But its payment would be the largest ever under that law and the entire deal would be the biggest it ever reached with a corporation.

Investors eager for an end to the saga and five years of litigation celebrated the deal, sending BP’s shares up 5.1% in U.S. after the announcement and adding more than $5 billion to its stockmarket value.

BP’s payments will be spread out over 18 years at about $1.1 billion annually, softening the blow to the company’s cash flow. The company expects to deduct much of the payouts from its taxes. And Fitch Ratings said the deal would strengthen BP’s credit, helping it improve its balance sheet and cope with the downturn in oil prices.

Most of the money will end up in the hands of Louisiana, Mississippi, Alabama, Texas and Florida to use for environmental remediation and economic development. While state officials touted the benefits of the settlement, not all were pleased with every aspect of the deal. Garret Graves, a Louisiana Republican, said the lengthy, multi-year payment period was too generous to BP and called for a faster collection.

U.S. District Court Judge  Carl Barbier ruled in September 2014 that BP acted recklessly in disregarding warning signs that the oil well wasn’t properly sealed against gas leaks, subjecting the company to the maximum fine under the Clean Water Act. In January, the judge determined BP was liable for spilling 3.19 million barrels of crude into the Gulf. Prosecutors sought at least $12 billion in fines under the act.

BP appealed those findings, but continued to suffer defeats in court. The U.S. Supreme Court earlier this week declined to hear an appeal that the company shouldn’t have to pay civil pollution penalties for the spill.

In addition to the $5.5 billion in penalties under the Clean Water Act—$2 billion more than the company had set aside for that purpose—BP agreed to pay $7.1 billion to the U.S. and Gulf Coast states to cover long-term environmental damages that are still being assessed. It would also set aside $232 million for damages that aren’t yet known, and would pay $5.9 billion to resolve economic and other claims made by the five states and more than 400 local governments.

While the proposed settlement would resolve some of BP’s biggest liabilities, the litigation over the spill isn’t entirely over. The company faces about 3 000 civil cases in U.S. and foreign courts, which include lawsuits brought by shareholders, and has yet to set aside money for those potential costs.

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