BP in $18.5 billion Deepwater Horizon settlement

BP in $18.5 billion Deepwater Horizon settlement U.S. Coast Guard photo

JULY 2, 2015 — Five Gulf Coast states and the federal government have reached a tentative settlement with BP that will see the oil company $18.5 billion over 18 years, in compensation for damages from the 2010 Deepwater Horizon oil spill. The $18.5 billion includes a civil penalty of $5.5 billion under the Clean Water Act (CWA) – payable over 15 years.

According to the U.S. Department of Justice, if approved, this will be the largest environmental settlement in the history of the United States, and the largest civil settlement with a single entity ever.

The Governor of one of the five states, Governor Robert Bentley of Alabama, announced today that the State of Alabama has reached an agreement in principle to settle its lawsuit with BP. The settlement is designed to compensate the State for both environmental and economic damages as a result of the disaster.

"The BP/ Deepwater Horizon oil spill was the worst environmental disaster in United States history, and the impact to the Alabama Gulf Coast was detrimental" Governor Bentley said. "We have reached an agreement in principle with BP to compensate the State for all of the environmental and economic damages suffered as a result of the oil spill. With the agreement announced today, we are taking a significant step forward in our State and will become a stronger, safer and more resilient state as a result of this terrible disaster."

The total value of the Agreement in Principle is approximately $18.5 billion for all of the affected Gulf states' economic losses, the natural resource damages and BP's Clean Water Act penalties.  Alabama's share of this global agreement is over $2.0 billion. On the economic side, $1 billion will be paid to the State over the next 18 years for economic damages suffered. On the environment side, Alabama will receive approximately $1.3 billion over the next 15 years that will be used to facilitate coastal restoration projects in Alabama.


BP issued the following statement

Five years on from the Deepwater Horizon accident and spill in 2010, BP has reached agreements in principle to settle all federal and state claims arising from the event.

BP today announced that its US Upstream subsidiary, BP Exploration and Production Inc (BPXP) has executed the agreements with the US federal government and five Gulf Coast states.

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 principal payments are as follows:

  • BPXP is to pay the United States a civil penalty of $5.5 billion under the Clean Water Act (CWA) – payable over 15 years.
  • BPXP will pay $7.1 billion to the United States and the five Gulf states over 15 years for natural resource damages (NRD). 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.
  • 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.
  • Up to $1 billion will be paid to resolve claims made by more than 400 local government entities.


The expected impact of these agreements would be to increase the cumulative pre-tax charge associated with theDeepwater Horizon accident and spill by around $10 billion from $43.8 billion at the end of the first quarter. Separately to these agreements, the total charge reported in BP's second quarter results will also reflect other items including charges for additional business economic loss determinations.

The principal payments arising from the agreements will be made over extended periods of time as set out in the attached schedule of payments.

NRD and CWA payments are scheduled to start 12 months after the agreements becomes final. Total payments for NRD, CWA and State claims will be made at a rate of around $1.1 billion a year for the majority of the payment period.

Carl-Henric Svanberg, BP's chairman, said: "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.

"In deciding to follow this path, the Board 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.

"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."

Bob Dudley, BP's group chief executive, said: "This is a realistic outcome which provides clarity and certainty for all parties.

"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."When concluded, this 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."

BP's chief financial officer, Brian Gilvary, said: "The negotiations were carried out with the goal of reaching a collective solution that would be acceptable for all parties. For BP this will provide certainty with respect to BP's financial obligations for the matters settled, particularly with the ability to spread payments smoothly over many years.

"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."

The agreements in principle are subject to execution of definitive agreements. These will comprise a Consent Decree with the United States and Gulf states with respect to the civil penalty and natural resource damages, a settlement agreement with five Gulf states with respect to State and local claims for economic and property losses, and release agreements with local government entities.

The Consent Decree will be subject to public comment and final court approval.

The Consent Decree and settlement agreement with the Gulf states are conditional upon each other and neither will become effective unless (1) there is final court approval for the Consent Decree and (2) local government entities execute releases to BP's satisfaction.

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 and/or whose claims were excluded from them. BP will continue to defend those claims vigorously. Today's agreements in principle also do not resolve private securities litigation pending in MDL 2185.




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