BP To Pay $18.7 Bln To Settle Gulf Oil Spill Claims

(RTTNews) - British oil giant BP plc (BP.L, BP_UN.TO, BP) agreed Thursday to pay $18.7 billion to settle claims related to the worst offshore oil spill in the U.S. history.

The US federal government and five states along the Gulf of Mexico were seeking compensation for the 2010 Deepwater Horizon disaster.

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 agreements in principle are subject to execution of definitive agreements with the US federal government, the five Gulf states and the local government entities. The definitive agreements will then be subject to public comment and final court approval.

"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," BP Chairman Carl-Henric Svanberg said in a statement.

BP said its US Upstream subsidiary, BP Exploration and Production, Inc. or BPXP will pay the US federal government a civil penalty of $5.5 billion under the Clean Water Act (CWA), which is payable over 15 years.

BPXP will also pay another $7.1 billion to the US federal government and the five Gulf states over 15 years for natural resource damages. 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.

Further, 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.

The company noted that up to $1 billion will also be paid to resolve claims made by more than 400 local government entities.

BP noted that this agreement 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 company has reportedly spent about $43 billion in spill response and claims at the end of the first quarter.

These agreements are projected 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.

However, 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.

The 2010 Deepwater Horizon accident in the Gulf of Mexico had claimed 11 lives and led to the worst offshore oil spill in U.S. history. The Deepwater Horizon rig that was drilling the Macondo well sank two days after the April 20, 2010 explosion and led to an oil spill of millions of gallons that impacted beaches and the fishing sector.

The well was finally capped nearly three months later on July 15, 2010. The spill is considered the largest accidental marine oil spill in the history of the petroleum industry.

The disaster sparked thousands of lawsuits against BP, as well as rig owner Transocean Ltd (RIG) and Halliburton Co (HAL). The two rig owners were also found to be negligent in the phase I trial, however, they were not as responsible as BP.

Bob Dudley, BP group chief executive, said, 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."

In Thursday's regular trading session, BP is currently trading at $41.22, up $1.95 or 4.97% on a volume of 6.20 million shares. In the past 52-week period, the stock has been trading in a range of $34.88 to $53.24.