5 Gulf states reach $18.7B deal with BP

Settlement to pay for spill

The Deepwater Horizon oil rig burns in the Gulf of Mexico on April, 21, 2010. BP and five Gulf states, Florida, Alabama, Mississippi, Louisiana and Texas, announced an $18.7 billion settlement Thursday over the resulting oil spill.
The Deepwater Horizon oil rig burns in the Gulf of Mexico on April, 21, 2010. BP and five Gulf states, Florida, Alabama, Mississippi, Louisiana and Texas, announced an $18.7 billion settlement Thursday over the resulting oil spill.

NEW ORLEANS -- BP and five states along the Gulf of Mexico announced Thursday that they have agreed to a record $18.7 billion settlement that would resolve years of legal fighting over the environmental and economic damage done by the energy giant's 2010 oil spill.

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AP

U.S. Attorney General Loretta Lynch speaks with members of the media as she visits the Birmingham Police Academy, Wednesday, June 24, 2015, in Birmingham, Ala.

The proposed settlement would likely mark the end of major litigation against BP PLC, after the biggest offshore oil spill in U.S. history. When the Deepwater Horizon oil rig exploded in April 2010, it killed 11 people and began an uncontrolled release of oil into the Gulf of Mexico that continued for months until the underwater well was capped.

The agreement, if accepted by a federal judge, would end a years-long battle between BP and the U.S. government over Clean Water Act penalties after a judge ruled the company was grossly negligent in the nearly 134 million-gallon spill.

It would resolve the states' natural resources damage claims and settle economic claims involving state and local governments in Florida, Alabama, Mississippi, Louisiana and Texas, according to an outline filed in federal court.

"If approved by the court, this settlement would be the largest settlement with a single entity in American history; 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," U.S. Attorney General Loretta Lynch said in a statement.

The oil spill wreaked economic and environmental havoc across the Gulf Coast states, affecting dolphins and birds, and hurting oyster, shrimp and fish populations.

Governors and attorneys general from four of the five states to receive money from the settlement announced it during simultaneous news conferences just as a court filing was made public.

The court filing was a confidentiality order that gave broad outlines of the deal. It did not go into specifics and barred the parties from doing so.

Louisiana Attorney General Buddy Caldwell said the agreement would end litigation that could have dragged on for years, delaying the state's ability to repair and rebuild its coast and wetlands.

"Today's settlement is a game-changer for Louisiana, its communities and its families," Caldwell said. But he cautioned that the finer details remain to be worked out in a final consent decree he expected to be complete in about two months.

Louisiana would receive the largest share of the settlement money -- about $6.8 billion.

Alabama Attorney General Luther Strange called the proposed settlement a "home run," and he and Gov. Robert Bentley said they believed a looming jury trial was a significant factor in reaching the agreement.

Financial analysts congratulated BP Chief Executive Officer Bob Dudley and Chief Financial Officer Brian Gilvary during a conference call Thursday, and investors cheered the move. U.S.-listed shares of BP rose $2.02, or 5 percent, to close Thursday at $41.29.

While the proposed payout is larger than BP had provisioned for, the company's Clean Water Act fines are less than they could have been. Plus, the payout is scheduled over so many years that BP will be able to pay investors a dividend and have enough financial flexibility to make deals and pursue large production projects. Dudley said during the conference call that he could see as many as 20 new projects by 2020, depending on oil prices.

"This allows us to manage BP as an oil company," Dudley said.

BP said the cumulative charge associated with the spill, before taxes, would rise to $53.8 billion from $43.8 billion at the end of March.

Those costs so far include an estimated $14 billion for response and cleanup and $4.5 billion in penalties announced after a settlement of a criminal case with the government. It remains unclear how much BP will end up paying under a 2012 settlement with individuals and businesses claiming spill-related losses.

The credit-rating firm Fitch said the deal will "considerably strengthen" BP's credit profile and would likely lead to an upgrade of the company's rating.

Under the proposed settlement, BP will pay $5.5 billion in penalties under the Clean Water Act. That's much lower than the $13.7 billion penalty BP was facing in the case.

The company also will have to pay $7.1 billion to fix natural-resource damage along with close to $5 billion more for the states to settle economic and other claims. Payments are to be spread over as many as 18 years.

The agreement came as U.S. District Judge Carl Barbier in New Orleans was preparing to rule on how much BP would have to pay in penalties for the Clean Water Act violations. Barbier had already ruled that about 134 million gallons of oil spilled into the Gulf of Mexico.

David Uhlman, a University of Michigan law professor and former chief of the Justice Department's environmental crimes section, said BP benefits in that the natural resource damage and economic claims are tax-deductible -- the Clean Water Act claims are not -- and because payments are spread out.

But, he said, the states are likely to get more money from the proposed settlement than they would have under what promised to be years of litigation.

"BP was staring down a gun barrel and had to find some way to settle this," said David Berg, a Houston trial lawyer who tracked the spill litigation but isn't involved in it. "The totals are staggering," though BP was able to secure a payout plan that stretches out over several years.

"It is realistic to price BP's total cost, including all remaining claims that haven't been covered by settlements, at $70 billion -- all in," Berg said.

Environmental groups remained concerned that the proposed settlement didn't go far enough.

Raleigh Hoke, campaign director for the Gulf Restoration Network, said the organization worried how much of the money promised for coastal restoration would actually go there. That's a key concern in Louisiana, which has been hurt by decades of coastal erosion that has made it even more at risk to hurricanes and rising ocean levels.

In Mississippi, officials said some of the money would cover projects including restoration of marshes and artificial reef habitats. In Louisiana, officials planned to use the money for coastal restoration, as well as wetlands and wildlife habitat repair.

Jacqueline Savitz, U.S. vice president for Oceana, a group dedicated to protecting the world's oceans, said the $18.7 billion still paled in comparison to what BP should pay. Pointing to the $13.7 billion that it might have faced in Clean Water Act penalties alone, she said it could -- and should -- have been more costly for the oil giant.

"We're settling for much less than what the American public deserves," she said.

Information for this article was contributed by Kevin McGill, Rebecca Santana, Mike Kunzelman, Melinda Deslatte, Emily Wagster Pettus, Tamara Lush and Kim Chandler of The Associated Press; by Ryan Parker and Michael Muskal of the Los Angeles Times; and by Margaret Cronin Fisk, Laurel Calkins and Rakteem Katakey of Bloomberg News.

A Section on 07/03/2015

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