BP to pay $18.7bn in oil spill settlement: Update

OREANDA-NEWS. July 03, 2015. BP will pay \\$18.7bn over the next 15-18 years to settle federal and state claims related to the 2010 Gulf of Mexico crude spill, effectively resolving most of the major issues from the deadly accident that has plagued the company for five years.

The length of the settlement payment plan, which will equal about \\$1.1bn per year, means the company is unlikely to face significant financial strain. BP said the deal will add another \\$10bn to the \\$43.8bn in pre-tax charges it has taken related to the spill.

The payments represent the largest environmental penalties ever assessed against a company in the US. Most of the money will go to the five Gulf coast states to pay for environmental and economic damage from the estimated 3.18mn bl of oil that spilled following the April 2010 blowout of the Macondo well.

The blowout aboard the drilling rig Deepwater Horizon killed 11 workers and led to the largest offshore oil spill in US history. The well spewed oil for 86 days before it was sealed. A judge found BP was grossly negligent in its actions leading up to the spill.

BP will pay \\$7.1bn to the five Gulf coast states to settle natural resource damage (NRD) claims, which include the impact of the spill on marine life. This does not include the \\$1bn the company previously paid to the states to begin addressing NRD claims. These payments will be tax deductible for BP.

Another \\$5.5bn will be paid to settle fines under the federal Clean Water Act (CWA). An additional \\$4.9bn will be paid to the five states to resolve economic loss claims and up to \\$1bn for local government economic loss claims.

An additional \\$700mn will be set aside to cover NRD claims that may arise after the agreement is finalized, and \\$600mn for other claims, including reimbursement NRD-related costs and other unreimbursed federal expenses.

A federal court must approve the deals before they are finalized.

BP said the agreement is financially manageable and will provide a steady stream of funds for economic and environmental restorations in the US for many years to come.

US attorney general Loretta Lynch said the settlement "would help repair the damage done to the Gulf economy, fisheries, wetlands and wildlife; and it would bring lasting benefits to the Gulf region for generations to come."

Alabama, Florida, Louisiana, Mississippi and Texas will receive most of the settlement money as 80pc of the CWA fines are earmarked for the states. Louisiana will get the most, with about \\$8.7bn earmarked for projects and compensation, followed by \\$3.3bn for Florida, \\$1.8bn for Alabama, \\$1.6bn for Mississippi and \\$818mn for Texas.

BP could have faced CWA fines as high as \\$13.7bn under a court ruling that was expected imminently from a federal judge in New Orleans, although many analysts expected the fines to be much lower. The company had argued in court that its willingness to pay many billions of dollars in spill cleanup, economic and environmental damages costs up-front should be considered in assessing the fines.

BP still faces billions of dollars in payments to Gulf coast businesses and individuals through a class action settlement reached in 2012. In early March the company gave up a two-year battle with the court-appointed administrator of the civil settlement to overhaul the agreement after an audit found 99.5pc of the payments were proper. By giving up that fight, BP essentially concedes the civil settlement payments will top their original \\$7.8bn estimate and even go beyond a later \\$9.7bn estimate.

Independent producer Anadarko, which owned a 25pc stake in the Macondo well, was not part of the settlement. It could still face up to \\$3.5bn in CWA fines although analysts expect the fines may be closer to \\$1bn. The company said it is awaiting the CWA ruling that is still pending with a federal judge in New Orleans, Louisiana, who previously found that Anadarko had no role in the decisions led to the accident.