BP to pay £12bn for explosion that led to oil spill

Oil giant BP said it had reached an $18.7 billion (£12bn) legal settlement in the US to cover the Deepwater Horizon explosion and oil spill that killed 11 workers five years ago.

The Deepwater Horizon explosion. Picture: Getty

It was one of the worst environmental disasters, and the biggest offshore oil spill, in US history.

BP said the agreement would settle all US federal, state and local claims for the Gulf of Mexico disaster, with payments spread over 18 years.

The agreement is with federal authorities as well as the states of Alabama, Florida, Louisiana, Mississippi and Texas, according to an outline filed in federal court. It also covers over 400 local government bodies.

The Gulf shoreline was devastated. Picture: Getty

BP chairman Carl-Henric Svanberg said: “Five years ago we committed to restore the Gulf economy and environment and we have worked ever since to deliver on that promise.

“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.”

The settlement is likely to mark the end of major litigation against BP. When the Deepwater Horizon oil rig exploded in April 2010, it killed 11 people on board and spread black oil across the Gulf Coast before the underwater well was capped a few months later.

Investors cheered the move, pushing BP shares up 5 per cent in midday trading in the US yesterday.

A confidentiality order gave broad outlines of the deal, including the money involved, but it did not go into specifics and barred any party from doing so.

In a conference call with financial analysts, BP said the cumulative charge associated with the spill, before taxes, would rise to $53.8bn from $43.8bn at the end of March.

Those costs so far include an estimated $14bn for response and cleanup and $4.5bn 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.

In a statement, Bob Dudley, BP’s group chief executive, called the settlement a “realistic outcome which provides clarity and certainty for all parties”.

“For BP, this agreement will resolve the largest liabilities remaining from the tragic accident and enable BP to focus on safely delivering the energy the world needs,” he said.

Environmental groups remained concerned the settlement didn’t go far enough.

Jacqueline Savitz, US vice-president for Oceana, a group dedicated to protecting the world’s oceans, said the $18.7bn still paled in comparison to what BP should pay.