2nd Jul 2015 13:35
LONDON (Alliance News) - BP PLC on Thursday said it has reached an agreement in principle to settle all US federal and state claims arising from the Deepwater Horizon spill in the Gulf of Mexico in 2010.
The agreement is the result of years of deliberation over the oil spill which occurred after a gas leak triggered an explosion on the Deepwater Horizon rig on the Macondo exploration well back in 2010. Eleven people died as a result with others injured and substantial damage was caused to the Gulf and surrounding shores.
In January 2015, the district court presiding over the case found that 3.19 million barrels of oil flooded into the Gulf of Mexico.
BP Thursday said its BP Exploration and Production Inc subsidiary, its US upstream unit, has reached agreements with the US federal government and five Gulf Coast states, comprising Alabama, Florida, Louisiana, Mississippi and Texas. The agreement also settles claims made by more than 400 local government entities.
BP said the agreement will see it pay out a total of USD18.7 billion in compensation, with the payments to be spread over 18 years.
That payout comprises of USD5.5 billion in civil penalties under the Clean Water Act paid over a 15 year period, USD7.1 billion to the US over 15 years for natural resource damages, USD4.9 billion over 18 years to settle economic and other claims made by the five gulf coast states and up to USD1.0 billion to resolve claims made by the local government entities.
The payments for the natural resource damage and under clean water act will be made 12 months after the agreement has been finalised, costing around USD1.1 billion per year, said BP.
That USD18.7 billion payment will increase BP's total pre-tax charge for the spill by around USD10.0 billion to around USD43.8 billion, as the company had already allocated some funds as a contingency.
BP claims to have spent more than USD14.0 billion by the end of 2014 on the clean up of the spill, which was deemed clear by the US Coast Guard in April 2014.
Separately to those agreements, the total charge reported in BP's second quarter results will also reflect other items including charges for additional "business economic loss determinations", said the company.
"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," said Chairman Carl-Henric Svanberg.
That clarity resulted in BP shares rising 4.2% to 436.55 pence, the best performer in the FTSE 100.
"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," added Svanberg.
"The impact of the settlement on our balance sheet and cashflow will be manageable and enables BP to continue to invest in and grow its business, underpinned by a resilient and robust financial framework," added Chief Financial Officer Brian Gilvary.
However, the agreement does not signal the complete end of the saga, as there are still claims from 2012 that are not included in the agreements, which BP will continue to "defend vigorously".
The agreements also don't cover the remaining costs from claims settled in 2012 with the Platiffs' Sterring Committee, the committee appointed by judge Carl Barbier of the Eastern District of Louisiana to spearhead the litigation proceedings.
By Sam Unsted; [email protected]; @SamUAtAlliance
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