By Daniel Gilbert And Sarah Kent
BP PLC agreed on Thursday to pay $18.7 billion to settle all
federal and state claims arising from the 2010 Deepwater Horizon
oil spill in what U.S. authorities called the biggest settlement
ever with a corporation.
If approved by a federal judge, the deal would conclude a
monumental legal showdown over the Deepwater Horizon disaster,
which killed 11 crew members aboard the drilling rig and caused the
largest offshore oil spill in U.S. history. The agreement would
avert years of litigation over the environmental impact of the
spill, which leaked millions of barrels of crude into the Gulf and
coated hundreds of miles of sensitive beaches, marshes and
mangroves.
The settlement would add at least $10 billion to the $44 billion
BP has already incurred in legal and cleanup costs, pushing its tab
for the spill higher than all the profits it has earned since 2012.
But the payments would be stretched out over 18 years at around
$1.1 billion annually, softening the blow to the company's cash
flow. Much of the penalties would likely be tax-deductible,
analysts noted.
The money largely will end up in the hands of the states, which
can use it for environmental remediation and economic
development.
BP shares rose nearly 5% in early trading on Thursday.
U.S. Attorney General Loretta Lynch said the payment "would
justly and comprehensively address outstanding federal and state
claims, including Clean Water Act civil penalties and natural
resource damages."
BP Chairman Carl-Henric Svanberg said in a news release that the
agreement provides "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," he said.
The company had been negotiating with the states and the U.S.
Justice Department since the beginning of May under the supervision
of the Federal District Court in New Orleans, according to a person
familiar with the matter. Judge Carl Barbier, who has been
presiding over the complex litigation, must approve the deal, which
is also subject to a period of public comment.
Judge Barbier had been expected to rule soon on BP's penalties
under the Clean Water Act, in which the company faced a fine of up
to $13.7 billion. Under the new deal, BP would pay $5.5 billion in
penalties under the act--by far the largest sum ever collected
under the law. It had already set aside $3.5 billion for the
pollution fines.
The company also agreed to pay $7.1 billion to the U.S. and Gulf
Coast states over 15 years to cover long-term environmental damages
that are still being assessed. In addition, it would pay $4.9
billion to resolve economic and other claims made by the five
states.
The environmental penalties, and a portion of the cash paid to
states, would likely be tax deductible, according to Tom Claps, a
litigation analyst at Susquehanna Financial Group. Fines under the
Clean Water Act aren't tax-deductible.
BP's lawyers had argued the company should pay no more than $2
billion under the Clean Water Act, offering evidence that its
massive cleanup effort helped avert an environmental calamity and
diminished its ability to pay a big fine. The company had rejected
claims from state and local governments that sought a combined $35
billion in economic loss and property damage, and efforts to reach
a settlement in 2013 had failed.
While the settlement announced Thursday would resolve some of
BP's biggest liabilities, the litigation over the spill isn't
entirely over. The company is being sued in about 3,000 civil cases
in U.S. and foreign courts, which include complaints brought by
shareholders, and has yet to set aside money for potential
costs.
BP's costs from a 2012 civil settlement with Gulf Coast
residents and businesses have continued to rise. The company's
latest estimate is that it will pay $10.3 billion, up from an
initial estimate of $7.8 billion. The deadline for filing claims
was June 8.
The Deepwater Horizon drilling rig exploded on the evening of
April 20, 2010, after gas seeped into the well it was working on,
rocketed upward and ignited on deck. Survivors compared the blast
to a freight train smashing into the vessel. The rig sank. Oil
flowed for 87 days.
--Justin Scheck and Devlin Barrett contributed to this
article.
Write to Sarah Kent at sarah.kent@wsj.com and Daniel Gilbert at
daniel.gilbert@wsj.com
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