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Energy Insights: Energy News: BP to Pay $18.7 Billion for Deepwater Horizon Oil Spill

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BP to Pay $18.7 Billion for Deepwater Horizon Oil Spill


The Deepwater Horizon oil rig burned in the Gulf of Mexico in April 2010. Credit Gerald Herbert/Associated Press

Under the agreement, BP would pay the federal government a civil penalty of $5.5 billion under the Clean Water Act over a 15-year time frame, and would pay $7.1 billion under the Natural Resource Damage Assessment to the gulf, which is meant to compensate for direct environmental harm caused by the spill.

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A further $5 billion of the settlement — in addition to $1 billion for local government claims — would arise from economic damage claims made by the states. But those claims are only a part of what the states would be getting.

The settlement still must be approved by United States District Court Judge Carl J. Barbier in New Orleans, who oversaw a tremendously complex two-year civil trial concerning the spill.

BP already agreed, in 2012, to pay $4 billion in criminal fines. And claims from shareholders or individuals are not affected.

In announcing the federal government’s part of the deal in Washington, Loretta E. Lynch, the attorney general, said that the recent round of negotiations, over several weeks, had produced an agreement in principle that would “justly and comprehensively address outstanding federal and state claims” and “bring lasting benefits to the Gulf region for generations to come.”

Robert W. Dudley, BP’s group chief executive, called the agreement “a realistic outcome which provides clarity and certainty for all parties.”

In separate news conferences across the gulf, governors and attorneys general highlighted the portions of the settlement that their states were likely to receive. They vary from state to state, with Texas estimating a final total of about $800 million, and Louisiana, which was most heavily damaged by the spill, projecting more than $6.8 billion

Where the Money Has Gone

BP has spent billions to settle claims and cover costs in the aftermath of the Deepwater Horizon oil spill in 2010. Among the payments are:

  • $14 billion

    to contain and clean up the spill.
  • $5.4 billion

    to settle 60,800 claims to date with individuals and business affected by the spill.
  • $4 billion

    for criminal penalties and fines, including payments to the National Fish and Wildlife Foundation.
  • $525 million

    to settle civil charges with the S.E.C. that it misled investors about the flow rate of oil from the well during the spill.
  • $236 million

    to revitalize tourism in Gulf Coast states.

In 2012, Congress passed the Restore Act, which redirects 80 percent of Clean Water Act penalties — previously deposited into the federal Treasury — to the affected states. With this money and the natural resources damage payments, which also go to the gulf, the settlement is a windfall for the states, even if it is paid out piecemeal.

Negotiators tried without success in the past to reach a settlement, though they came close more than once. One failed round of negotiations, on the eve of the trial in 2013, would have produced a total amount not much less than what was announced on Tuesday, said David M. Uhlmann, a professor at the University of Michigan Law School and a former federal prosecutor of environmental crimes. But the exact mix of money within that deal was different; for instance, state and local economic damages were not a part of it.

“The problem then was that Louisiana and to a lesser extent Alabama had unrealistic expectations for how much they should receive,” he said, adding that in the years since “the states became much more realistic.”

The findings at trial put pressure on BP, as did the downturn in global oil prices. But the oil price drop also brought pressure on Louisiana, which, like Alabama, had been already facing severe budget crunches.

Garret Graves, a member of Congress from Louisiana who served as the state’s top coastal restoration official and represented the state in prior negotiations with BP, said he could not comment in detail on the negotiations. But he insisted that much had changed since the initial talks.

“Some of the earlier discussions with BP reminded me of the circuslike, disconnected response to the spill itself,” he said. The intervening years brought “significant changes within BP’s command and control,” allowing for the new agreement.

With this deal, BP gets valuable certainty, especially as it does not include any clause that could reopen litigation. The extended payment schedule also allows it to absorb the pain in manageable doses.

And because they will receive billions in economic damage claims, money coming through the Restore Act and the natural resources damages process — far more than they would have obtained in litigation — the states, Professor Uhlmann said, “made out like bandits.”

Environmental groups had a mixed reaction to the announcement, with some welcoming it as overdue, others condemning it as too little and still others expressing a cautious optimism.

Bethany Kraft, director of the Gulf Restoration Program at the Ocean Conservancy, welcomed news of the settlement, but emphasized that this was only the beginning of the work. She highlighted $232 million set aside under the settlement that, combined with interest from other payments, is meant to address any natural resources damages that are discovered after the settlement is in effect. Such money she described as critical but possibly insufficient, as some environmental damage from the spill may not be understood for decades.

“Let’s put it this way: I’m still going to come in to work tomorrow,” Ms. Kraft said. “I think it’s still critically important for all of us to pay attention to how this money is spent.”

On the state level, the different sources of money come with different strings attached. Money paid in economic damages would primarily go into state coffers, while the natural resources damages payments must be spent on environmental restoration. The Clean Water Act penalties would mostly be divided up among the states and a Gulfwide council under a formula laid out in the Restore Act, which directs that the funds be spent on the “ecological and economic restoration” of the gulf.

BP already made a $1 billion down payment to states for early restoration projects, some of which was directed toward controversial projects like a hotel in Alabama. But for the most part, the money has been seen as critical to addressing longstanding environmental problems.

This proposed agreement would end federal and state involvement in a three-phase trial that began more than two years ago in one of the most complex and closely watched civil cases in United States history. Over the course of the trial, which took place in New Orleans, the Justice Department argued that the company should pay the maximum federal penalty of $13.7 billion, or $4,300 for every barrel spilled, under the Clean Water Act in cases of gross negligence.

On Thursday, BP set the ultimate cost associated with the spill at nearly $54 billion, though there are still some unknowable expenses to come. While the settlement clears away most of the liability exposure that BP faces, it does not eliminate some shareholder claims or private claims from thousands of individuals and businesses whose efforts in court will continue. BP has settled hundreds of thousands of such claims since the spill.

Testimony in the two-year civil trial ended in February, and on Monday, the Supreme Court declined to hear an appeal of Judge Barbier’s liability determination of BP and Anadarko, the co-owners of the Deepwater Horizon well.

And the settlement, as some pointed out, is not yet set in stone.

“I knew nothing about it,” said Tony Kennon, the mayor of Orange Beach, Ala., a tourist town that was devastated during the summer of the spill, and which has sued BP for $50 million. Mr. Kennon insisted that the lawsuit was not over as far his town was concerned and that he now expected to seek more in damages.

However, he also expected a nice Fourth of July weekend.

“If the weather’s pretty,” he said, “we will break all records.”

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