BP to settle Deepwater Horizon claims for $18.7 billion

HOUSTON — BP has agreed to pay a record $18.7 billion to settle federal and state claims against it for its role in the Deepwater Horizon oil spill, sidestepping years of litigation with a promise to pour funds for nearly two decades into efforts to repair vast environmental damage in the Gulf region.

The pact, subject to court approval, would require the London oil major to pay the sum over the next 18 years in installments of $1.1 billion a year for most of the payment period. Weeks of negotiations between BP and the Justice Department ended in a deal Thursday five years after the worst environmental disaster in American history, an 87-day spill off the coast of Louisiana that emptied millions of barrels of oil into the Gulf of Mexico. A subsea well blowout led to an explosion on the Deepwater Horizon rig that killed 11 workers and destroyed the rig on April 20, 2010.

The settlement would be the largest accord the U.S. government has ever in its history made with one entity, U.S. attorney general Loretta Lynch said in a written statement. Since the oil spill, “the Justice Department has been fully committed to holding BP accountable, to achieving justice for the American people and to restoring the environment and the economy of the Gulf region at the expense of those responsible and not the American taxpayer,” Lynch said.

The settlement “would help repair the damage done to the Gulf economy, fisheries, wetland and wildlife; and it would bring lasting benefits to the Gulf region for generations to come.”

It would bolster BP’s oil spill costs by about $10 billion, up from the $43.8 billion it had already set aside to pay cleanup costs and spill fines. The deal would have BP’s U.S. oil-producing business, the BP unit legally tied to the Macondo spill, pay the U.S. government $5.5 billion in civil environmental penalties under the Clean Water Act, paid out over 15 years.

The company will also pay $7.1 billion over the next 15 years to the U.S. and Gulf states for Natural Resource Damages, adding to the $1 billion it has already paid to help repair environmental damage in the region. It would set aside $232 million to pay at the end of 15 years for any damage that hasn’t been discovered yet.

Before the settlement was announced, a federal judge was set to rule on environmental fines for the spill that could have run as high as $13.7 billion. That’s more than twice the amount BP might end up paying. U.S. District Judge Carl Barbier had ruled BP was grossly negligent in the lead up to the three-month oil spill that began April 20, 2010, meaning the firm would have to pay the maximum fine of $1,100 per barrel. Barbier had also ruled BP spilled 3.19 million barrels of crude into the ocean.

The Clean Water Act and Natural Resource Damage payments will start a year after the settlement is finalized, BP said.

That portion of the deal would be worked into a consent decree with the federal government and five Gulf Coast states. BP would also pay $4.9 billion over 18 years to resolve economic and other claims by Louisiana, Texas, Alabama, Florida and Mississippi. And it would pay $1 billion to settle claims that more than 400 local government entities have made in the last few years.

Texas Gov. Greg Abbott said the state would recover $750 million in that sum, allowing Texas “to reinvest in the Gulf community and reinvigorate the economic and environmental health of the region.”

The pact comes three years after BP reached a settlement with attorneys for thousands of Gulf Coast residents and businesses claiming financial losses in the wake of the spill. BP estimates that settlement will cost it more than $10 billion when it has paid out all of those claims. It has paid out about $5.2 billion from its settlement program so far, according to claims administrator Patrick Juneau.

“For BP,” CEO Bob Dudley said in a written statement, “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.” And for the U.S. and the Gulf Coast, it would bring a “significant income stream over many years for further restoration of natural resources and for losses related to the spill,” Dudley said.

BP says settling the spill claims will give shareholders much-needed clarity on its financial prospects in years ahead. Brian Gilvary, the company’s chief financial officer, said the impact of the $18.7 billion settlement on its balance sheet and cash flow, spread out over 18 years, “would be manageable and enables BP to continue to invest in and grow its business, underpinned by a resilient and robust financial framework.” Investors boosted the company’s share price nearly 5 percent in early trading Thursday to $41.20 a share on the New York Stock Exchange.