The Justice Department announced Thursday an $18.7 billion agreement with BP to settle civil claims arising from the 2010 Deepwater Horizon disaster in the Gulf of Mexico, the worst oil spill in U.S. history.
The comprehensive agreement, the largest environmental settlement ever, includes the largest Clean Water Act fine in history as well as addressing other federal and state claims.
BP will pay the settlement at a rate of about $1 billion a year for 18 years, with the first payment due in two years. The London-based oil giant said it planned to add $10 billion to the enormous $43.8 billion it had already set aside to cover costs related to the spill.
Bob Dudley, BP’s chief executive, issued a statement calling the deal “a realistic outcome which provides clarity and certainty for all parties.” He said it would provide “a significant income stream over many years for further restoration of natural resources and for losses related to the spill.”
Investors breathed a sigh of relief; BP’s stock was up nearly 5 percent at 11 a.m. Eastern time. While the total size of BP’s costs related to the spill ended up even higher than huge amount anticipated by the company early on, BP’s ability to spread out the payments made the cost manageable in the eyes of investors. The company’s capital spending budget is currently about $20 billion a year.
The agreement comes five years and 73 days after the blowout in mile-deep water led to an explosion aboard the Deepwater Horizon that killed 11 people and immolated the giant rig. There had never been a blowout at such depths, and initial efforts to shut in the well failed.
The blowout not only triggered the spill, but also a gusher of lawsuits. BP has already paid out or agreed to pay out billions for a myriad of claims, including $7.8 billion to private individuals and companies such as gulf fishermen and coastal hotels and $4 billion to settle criminal charges.
“If approved by the court, this settlement would be the largest settlement with a single entity in American history,” Attorney General Loretta E. Lynch said in a statement. “It would help repair the damage done to the Gulf economy, fisheries, wetlands and wildlife. And it would bring lasting benefits to the Gulf region for generations to come.”
The agreement comes three days after the Supreme Court denied BP’s petition to overrule a decision by New Orleans District Court Judge Carl Barbier, who found BP guilty of “gross negligence.”
The gross negligence finding enabled the federal government to seek to impose higher fines of as much as $4,300 a barrel for the 3.19 million barrels spilled, instead of a $1,100 a barrel for cases where gross negligence was not an issue. Barbier was expected to rule on the amount shortly. In the end, the Clean Water Act fine amounted to $1,724 a barrel.
Barbier had also galvanized settlement negotiations on March 30 this year when he ruled that Alabama could seek economic damages in lawsuits tried before a jury, which would have led to lengthy and most likely costly trials for BP.
The rig sank on April 22, 2010, coming to rest upside down on the muddy floor of the gulf about 1,500 feet from the wellhead. The Macondo well continued to gush for a total of 87 days, polluting the gulf with millions of barrels of oil — the precise amount became the focus of furious legal battling — before it could be capped by new hardware and shut in.
In December 2010, then-Attorney General Eric H. Holder Jr. announced a civil lawsuit against BP and its co-defendants.
Immediately after the spill, BP sought to quickly “make things right” in the gulf and put the incident behind it. This contrasted with Exxon Mobil’s strategy following the 1989 Exxon Valdez oil tanker accident; in that case, Exxon Mobil litigated for two decades and ended up paying about $1 billion.
But BP’s efforts to quickly tie up claims took longer than anticipated. BP has fought in court to limit its fines under the Clean Water Act and resist what it considers to be spurious claims from individuals who say they were harmed by the spill. It has also sought to distribute blame for the spill among other companies that were involved in the Macondo well, most notably Transocean, the owner of the Deepwater Horizon rig.
Lynch hailed the department’s trial team, made up of attorneys from the Environment and Natural Resources Division and Civil Division, and said they proved that “BP’s gross negligence” resulted in the Deepwater disaster.
The legal repercussions have been lengthy and complicated. The agreement addresses the most critical unresolved issue to date: How much BP must pay in Clean Water Act fines.
According to the agreement, BP will pay $5.5 billion in Clean Water Act penalties, 80 percent of which will go to restoration efforts in five affected gulf states. It will also pay $8.1 billion in natural resource damages and an additional $700 million to respond to environmental damages unknown at the time of the agreement.
BP has also agreed to pay $5.9 billion to settle claims by state and local governments for economic damages suffered as a result of the spill, and a total of $600 million for other claims, including for reimbursement of damage-assessment costs.
“This unprecedented agreement is the latest in a long series of actions to achieve justice for Gulf communities,” said EPA Administrator Gina McCarthy, whose agency worked with the Justice Department to bring the case.
While the well remained uncapped, and with a “spillcam” showing the world how oil was flowing freely into the gulf, BP desperately sought to find a way to ensure its corporate survival. Top BP officials met with President Obama in the White House and pledged to set aside $20 billion in an escrow account for civil claims and gulf restoration. In exchange, Obama said it was important that BP remain a viable entity. That steadied the company’s sinking stock price.
This agreement is unlikely to end all legal actions associated with the spill, but it brings to a close the litigation between the company and the most muscular entities involved — the federal and state governments.
Still outstanding are claims associated with the Plaintiffs Steering Committee that are being heard in a federal court in New Orleans. A settlement outline has been reached in that case, though the final claims were only due June 8.
In addition, the Justice Department is still pursuing claims against Anadarko Petroleum, which owned a minority stake in the Macondo well but which has argued that it does not share liability in the spill.