BP rallies after saying it will settle over 2010 Gulf of Mexico spill for up to $18.7bn

Shares in BP rallied nearly 4% on Thursday after the company said that it has reached agreements in principle to settle all federal and state claims arising from the 2010 Gulf of Mexico oil spill at a cost of up to $18.7bn spread over 18 years .

The company’s US Upstream subsidiary, BP Exploration and Production Inc (BPXP), has executed the agreements with the US federal government and five Gulf Coast States.

The agreement with the states of Alabama, Florida, Louisiana, Mississippi and Texas also includes settlement of claims made by more than 400 local government entities, said BP.

Under the terms of the agreement, BPXP will pay the United States a civil penalty of $5.5bn over 15 years under the Clean Water Act.

BPXP will pay $7.1bn to the US and the five Gulf states over 15 years for natural resource damages (NRD), in addition to the $1bn already committed for early restoration.

BPXP will also set aside an additional $232m to be added to the NRD interest payment at the end of the payment period to cover any further natural resource damages that are unknown at the time of the agreement.

A total of $4.9bn will be paid over 18 years to settle economic and other claims made by the five Gulf Coast state, while up to $1bn will be paid to resolve claims made by more than 400 local government entities.

BP said the expected impact of these agreements would be to increase the cumulative pre-tax charge associated with the Deepwater Horizon accident and spill by around $10bn from $43.8bn at the end of the first quarter.

Separately to these agreements, the total charge reported in BP’s second quarter results will also reflect other items including charges for additional business economic loss determinations.

BP’s group chief executive Bob Dudley said: “This is 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.”

Chief financial officer Brian Gilvary said the impact of the settlement on the company’s balance sheet and cash flow will be manageable and allow it to continue to invest in and grow its business, underpinned by a resilient and robust financial framework.