Oil Spill Gulf of Mexico 6 May 2010

BP Exploration and Production (BPXP), the US upstream subsidiary of BP has agreed to pay $18.7bn to settle the claims regarding the 2010 Deepwater Horizon oil spill incident that killed 11 crew members.

The agreements have been carried out with the US Department of Justice (DoJ) and five Gulf Coast states including Alabama, Florida, Louisiana, Mississippi, and Texas.

Under the terms of the agreement, BPXP will pay a civil penalty of $5.5bn for over a period of 15 years to the US federal government under the clean water act (CWA).

Besides the $1bn, which was already committed for early restoration, the company will pay $7.1bn to the US and the Gulf Coast states over 15 years for natural resource damages (NRD) that were caused due to the spill.

An additional $232m has been earmarked to be added to the NRD interest payment at the end of the payment period so that any further natural resource damages that are unknown at the time of the agreement can be covered.

Economic and other claims made by the five Gulf Coast states will be settled by paying a total of $4.9bn over 18 years, and up to $1bn would be paid to resolve claims made by over 400 local government entities.

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The impact of the settlement is expected to increase the cumulative pre-tax charge associated with the accident and spill by around $10bn from $43.8bn at the end of the first quarter.

"Since the Deepwater Horizon oil spill the Justice Department has been fully committed to holding BP accountable."

US attorney general Loretta E. Lynch said in a statement: "Today, I am pleased to say that after productive discussions with BP over the previous several weeks, we have reached an agreement in principle that would justly and comprehensively address outstanding federal and state claims, including Clean Water Act civil penalties and natural resource damages.

"Since the Deepwater Horizon oil spill, the largest environmental disaster in our nation’s history, the Justice Department has been fully committed to holding BP accountable, to achieving justice for the American people and to restoring the environment and the economy of the Gulf region at the expense of those responsible and not the American taxpayer."

According to BP, NRD and CWA payments are due to start one year after the agreements becomes final.

BP chairman Carl-Henric Svanberg said: "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."

BP group chief executive Bob Dudley said: "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."

The agreements in principle are subject to execution of definitive agreements, which consist of a consent decree with the US and the five states regarding the civil penalty as well as natural resource damages.

Image: Dark clouds of smoke and fire emerge as oil burns during a controlled fire in the Gulf of Mexico on 6 May 2010. Photo: courtesy of Petty Officer 2nd Class Justin Stumberg