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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 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 US history.
"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 per cent to 437.4 per cent 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 US 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," US 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.
