BP to File $18 Billion Settlement Agreement Monday

Energy

Published: October 5, 2015 7:20 am

Last Updated: April 27, 2020 6:06 pm

BP PLC (NYSE: BP) announced in early July that it had reached an agreement in principle with the U.S. Department of Justice to pay more than $18 billion to settle claims related to the explosion at the company’s Macondo well in the Gulf of Mexico that killed 11 workers and spilled millions of barrels of oil into Gulf waters. The company will file the details of that agreement in federal court on Monday, and the members of the public will have 60 days to comment on the settlement before the court makes it final.

Here are the general terms of the agreement reached in July:

A civil penalty of $5.5 billion related to violations of the Clean Water Act payable over 15 years
A natural resources damages payment of $7.1 billion to the federal government and five Gulf states—Alabama, Florida, Louisiana, Mississippi and Texas—also payable over 15 years
A total of $4.9 billion over a period of 18 years to settle other claims from the five Gulf states
Up to $1 billion to resolve claims from more than 400 local governments

The good news for BP was that it could have been much worse. BP faced a fine of up to $18 billion for violations of the Clean Water Act alone. Had the company been found grossly negligent and had a court accepted the government estimate of 4.2 million barrels spilled, BP could have paid $4,300 per barrel.

Under the July agreement, the company is paying about $1,300 per barrel, much closer to the lower limit of the Clean Water Act’s $1,100 per barrel negligence penalty than to the $4,300 per barrel maximum. In January of this year, a federal judge set the total number of barrels spilled at 3.19 million, which could have led to a penalty payment of $13.7 billion under the Clean Water Act.

Through the end of the second quarter of this year, BP had booked $54.6 billion in pretax charges related to the disaster. That total presumably includes the $18 billion agreement.

In Monday’s premarket trading, BP’s stock traded up 1.8% at $33.11, after closing at $32.52 on Friday. The 52-week range is $29.35 to $43.85.

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