BP Settles Government's Deepwater Horizon Claims

Published Jul 3, 2015 4:13 AM by The Maritime Executive

Five years on from the Deepwater Horizon accident and spill in 2010, BP has reached agreements in principle worth $18.7 billion to settle all federal and state claims arising from the event. It is the largest settlement with a single entity in U.S. history, the U.S. Department of Justice said.

BP announced that its U.S. Upstream subsidiary, BP Exploration and Production Inc (BPXP) has executed the agreements with the U.S. federal government and five Gulf Coast states.

The agreement with the states of Alabama, Florida, Louisiana, Mississippi and Texas also includes settlement of claims made by more than 400 local government entities.

The principal payments are as follows:

BPXP is to pay the United States a civil penalty of $5.5 billion under the Clean Water Act (CWA) – payable over 15 years.

BPXP will pay $7.1 billion to the U.S. and the five Gulf states over 15 years for natural resource damages (NRD). This is in addition to the $1 billion already committed for early restoration. BPXP will also set aside an additional amount of $232 million to be added to the NRD interest payment at the end of the payment period to cover any further natural resource damages that are unknown at the time of the agreement.

A total of $4.9 billion will be paid over 18 years to settle economic and other claims made by the five Gulf Coast states.

Up to $1 billion will be paid to resolve claims made by more than 400 local government entities.

The expected impact of these agreements would be to increase the cumulative pre-tax charge associated with the Deepwater Horizon accident and spill by around $10 billion from $43.8 billion at the end of the first quarter. Separately to these agreements, the total charge reported in BP’s second quarter results will also reflect other items including charges for additional business economic loss determinations.

NRD and CWA payments are scheduled to start 12 months after the agreements becomes final. Total payments for NRD, CWA and State claims will be made at a rate of around $1.1 billion a year for the majority of the payment period.

Carl-Henric Svanberg, BP’s chairman, said: “Five years ago we committed to restore the Gulf economy and environment and we have worked ever since to deliver on that promise. We have made significant progress, and with this agreement we provide a path to closure for BP and the Gulf. It resolves the company’s largest remaining legal exposures, provides clarity on costs and creates certainty of payment for all parties involved.

“In deciding to follow this path, the board has balanced the risks, timing and consequences associated with many years of litigation against its wish for the company to be able to set a clear course for the future.

“The board therefore believes that this agreement is in the best long-term interest of BP and its shareholders. The board set out its position on the dividend at the first quarter and this remains unchanged by the agreement.”

Bob Dudley, BP’s group chief executive, said: “This is a realistic outcome which provides clarity and certainty for all parties. For BP, this agreement will resolve the largest liabilities remaining from the tragic accident and enable BP to focus on safely delivering the energy the world needs.

“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.

“When concluded, this will resolve not only the Clean Water Act proceedings but also the Natural Resource Damage claims as well as other claims brought by Gulf States and local government entities.”

The agreements do not cover the remaining costs of the 2012 class action settlements with the Plaintiffs’ Steering Committee for economic and property damage and medical claims. They also do not cover claims by individuals and businesses that opted out of the 2012 settlements and/or whose claims were excluded from them. BP will continue to defend those claims vigorously. The agreements in principle also do not resolve private securities litigation pending in MDL 2185.

The following is a timeline of key events:

April 20, 2010, RIG EXPLODES: An explosion on the Deepwater Horizon oil rig at the Macondo exploration well kills 11 workers and releases millions of barrels of crude oil into the Gulf of Mexico. The well is capped in mid-July. BP ultimately sets aside $42 billion to pay for cleanup costs, damages and penalties.

November 2012, CRIMINAL CASE SETTLED: BP agrees to pay $4.5 billion in fines and other penalties and pleads guilty to 14 criminal charges. The U.S. government bans BP from new federal contracts, imperiling the company's role as a top U.S. offshore oil producer and No. 1 military fuel supplier. Separately, the U.S. Department of Justice files criminal charges against three BP employees in connection with the accident.

December 2012, CLASS ACTION SETTLED: U.S. District Judge Carl Barbier gives final approval to BP's settlement with individuals and businesses claiming to have lost money and property because of the spill. BP initially estimates it will pay $7.8 billion to settle more than 100,000 claims, but the dollar amount is not capped. The company later says the payout may grow substantially, in part because of payouts to many claimants who suffered no harm, and files numerous legal challenges to the agreement.

February 2013, CIVIL TRIAL BEGINS: Officials from the federal government and several U.S. states begin facing BP in court at a three-phase civil trial over how blame should be apportioned between BP, Transocean Ltd, which owned the drilling rig, and Halliburton Co, which did cement work. Government lawyers urge Barbier to find BP grossly negligent, which could roughly quadruple the amount of fines under the U.S. Clean Water Act.

September 30, 2013, SECOND PHASE OF TRIAL BEGINS: The second phase begins to determine how much oil was spilled.

September 4, 2014, JUDGE FINDS BP BEARS MOST OF THE BLAME: Barbier finds BP "grossly negligent" for its role in the oil spill. He assigns 67 percent of the fault to BP, 30 percent to Transocean and 3 percent to Halliburton. BP pledges to appeal.

January 15, 2015, SIZE RULING: Barbier determines that 3.19 million barrels of oil spilled. The amount would be used to calculate damages.

Feb. 24, 2015, SIZE APPEAL: BP appeals judge's ruling on size of the oil spill.

July 2, 2015, SETTLEMENT REACHED: BP agreed to pay about $18.7 billion in damages for water pollution caused by the spill, settling claims with the U.S. government and Louisiana, Mississippi, Alabama, Texas and Florida.