Gulf of Mexico oil spill: BP finally gets disaster closure with $18.7bn payout

Oil giant settles last federal and state claims in deal that sets record but cheers investors

The Deepwater Horizon spill in 2010 claimed 11 lives and led to millions of barrels of oil polluting the sea. The total bill now stands at $53.8bn (Reuters)

BP has removed most of the remaining uncertainty over the cost of the Gulf of Mexico oil spill as it announced a record $18.7bn (£12bn) deal to settle all outstanding federal and state claims in the US.

Investors welcomed the deal because the payout was far lower than feared, even though it was the largest such agreement ever struck between the US and a company. The shares jumped by more than 4 per cent after the deal was announced.

The agreement brings the total cost so far of the disaster – which killed 11 workers and spilt millions of barrels of oil into the sea in April 2010 – to $53.8bn. It includes a $5.5bn civil penalty under the Clean Water Act – far lower than the $13bn that the US Government was pushing for – and a $7.1bn payment to the US and the five Gulf states for “natural resource damage”.

“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 payments for all parties involved,” said the company’s chairman, Carl-Henric Svanberg.

“The board believes this agreement is in the best long-term interest of BP and its shareholders. It 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,” he added.

The agreement also includes a $4.9bn payment to settle economic claims by the Gulf states of Alabama, Florida, Louisiana, Mississippi and Texas and up to $1bn to resolve claims by 400 local government entities. Most of the payments will be spread over 15 to 18 years, giving investors further cheer.

BP chairman Carl-Henric Svanberg said the deal ‘sets a clear course for the future’ (AFP/Getty)

These latest payments resolve all but two of BP’s outstanding legal cases: a class action lawsuit in Texas by investors related to share price losses; and the controversial Plaintiffs’ Steering Committee for economic and property damage.

The latter – an agreement to compensate victims of the oil disaster – is proving a headache for BP, which complained that some businesses were receiving “fraudulent” payments despite being unable to prove they lost money. BP claims this is because the deal was interpreted incorrectly by an administrator, forcing it to pay firms even when they could not show any damages. In one instance, the compensation committee paid out $9.7m to a construction company based 200 miles off the coast of Alabama, which had its best-ever year when the disaster struck, BP has said.

As a result, the costs of a compensation scheme that BP initially estimated would be $7.8bn are spiralling. The company later increased its estimate to $8.3bn – which is included in its $53.8bn figure for the total spill costs so far – but has since decided against giving further estimates in the face of the uncertainty.

However, a BP spokesman insisted that the compensation scheme was “running much more smoothly” now and insisted that the company’s remaining legal costs would be significantly below the $18.7bn agreement struck.

Bob Dudley, BP’s chief executive, said: “This is a realistic outcome which provides clarity and certainty for all parties … It will resolve the largest liabilities remaining from the tragic accident.

“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,” he added.