BP chief says agreement with Andarko resolves "a significant uncertainty"

bobdudleyIn what Bob Dudley, BP group chief executive, calls "a positive resolution of a significant uncertainty," BP and Anadarko Petroleum Company have reached an agreement to settle all claims between them related to the Deepwater Horizon accident. Anadarko – which had a 25 per cent interest in the MC252 (Macondo) prospect – and BP have concluded that entering into a settlement is in the best interest of the parties to resolve pending disputes. The agreement is not an admission of liability by any party regarding the accident.

Under the settlement agreement, Anadarko will pay BP $4 billion in a single cash payment. BP will apply the payment to the $20 billion trust it established that is available to meet individual, business and government claims, as well as the cost of the natural resource damages. Anadarko will also transfer all of its 25 per cent interest in the MC252 lease to BP.

In addition, Anadarko will no longer pursue its allegations of gross negligence with respect to BP. Anadarko and BP have agreed to work cooperatively with respect to indemnified claims, and Anadarko has the opportunity for a 12.5 per cent participation in future recoveries from third parties or insurance proceeds cumulatively exceeding $1.5 billion, up to a total cap of $1 billion.

Finally, the parties have also agreed to mutual releases of claims against each other. BP has agreed to indemnify Anadarko for certain claims arising from the accident. However, BP's indemnity excludes civil, criminal or administrative fines and penalties, claims for punitive damages, and certain other claims.

"This settlement represents a positive resolution of a significant uncertainty and it resolves the issues among all the leaseholders of the Macondo well," said Bob Dudley, BP group chief executive. "There is clear progress with parties stepping forward to meet their obligations and help fund the economic and environmental restoration of the Gulf. It's time for the contractors, including Transocean and Halliburton, to do the same."

BP previously announced settlements with MOEX, which had a 10 per cent interest in the Macondo well, and Weatherford, which provided drilling equipment.

"This settlement agreement with BP is the right action for our stakeholders, as it removes significant uncertainty regarding future liabilities and associated risks," Anadarko Chairman and CEO Jim Hackett said. "With this issue resolved, we believe focus will return to the tremendous value embedded in our asset base and the company's operational and exploration success that have been under-valued during the last 18 months. Importantly, BP has committed to use the funds to pay the claims of individuals and entities affected by the Deepwater Horizon event."

According to its public filings, BP has recorded a charge in excess of $40 billion for total estimated costs associated with the event. To date, BP has invoiced Anadarko an aggregate of $6.1 billion for what BP considers to be Anadarko's 25-percent proportionate share of BP's actual and near-term costs.

"The settlement amount, equivalent to approximately $5 per share after tax, eliminates all significant exposure to historical and future claims," said Hackett. "Though the agreement does not provide indemnification against fines and penalties, punitive damages or certain other potential claims, we do not consider these items to represent a significant financial risk to Anadarko. This confidence stems from recent court decisions that released Anadarko from punitive damages and personal injury claims, combined with the findings of various investigations that have confirmed the company had no direct involvement in the drilling of the Macondo well."

Anadarko will record a $4.0 billion liability associated with this settlement in its third-quarter 2011 financials. The company will remit the settlement amount to BP within 45 days and plans to fund the payment with a combination of cash on hand and drawing down funds from its $5.0 billion credit facility. Anadarko expects to receive in excess of $163 million of net proceeds from its insurance providers and plans to repay borrowings under its credit facility with a portion of the proceeds from a possible monetization of its Brazilian subsidiary. Anadarko expects to open a data room for its Brazilian properties later this year, with anticipated closing of a sale in 2012, subject to the terms achieving the company's desired value thresholds and regulatory approval.

"Consistent with official investigations that found the accident was the result of multiple causes, involving multiple parties, BP is working to ensure that other parties, including Halliburton and Transocean, contribute appropriately," says a BP press release. "Multiple official investigations, including those conducted by the Presidential Commission and the Marine Board of Investigation, found that conduct by those parties contributed to the accident. The issuance of regulatory violations last week to BP, Transocean and Halliburton by the U.S. Department of Interior demonstrates that the contractors responsible for well control and cementing, not just the operator, should be held accountable for their conduct.

From the outset, says BP, it has committed to paying all legitimate claims and fulfilling its obligations to the Gulf Coast communities under the Oil Pollution Act. BP has to date paid out more than $7 billion.

October 21, 2011

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