Shares in BP are expected to rise 5-9 percent on Monday after the oil giant reached a settlement with businesses and individuals impacted by the Gulf of Mexico oil spill worth an estimated $7.8 billion.

Some analysts said the expected payout was less than they had forecast, reduced legal uncertainty and suggested the final settlement with BP's biggest opponent - the U.S. government - would be much lower than the worst case scenario.

On a trading basis we see a potentially quite positive reaction ... BP moving to the 530-550 pence range near term (if not higher), and possibly higher thereafter, said Jason Kenny, oil analyst at Santander.

BP shares closed at 496.5 pence on Friday.

Analysts had given a wide range of forecasts for how much BP would have to pay out to compensate fishermen, condominium owners and hoteliers, with many predicting a figure of $14 billion, although BP had taken a provision of just $6.1 billion.

The company has also taken a $3.5 billion provision for expected government fines but the maximum possible level of penalty could be over $20 billion, if BP is found to have been grossly negligent.

Analysts said the agreement boosted the chances of a settlement with the government.

What this agreement does, if it is implemented, is to give the management of BP further encouragement to try and reach a settlement out of court (with the U.S. Department of Justice), said Iain Armstrong, oil analyst with Brewin Dolphin, via email.

Fadel Gheit, oil analyst at Oppenheimer in New York, said BP's hand had been strengthened by the deal.

I think the settlement further weakens the government claim of gross negligence, he said.

Analysts at Morgan Stanley predicted the agreement would allow BP to continue raising its dividend, which was cut at the height of the oil spill - the worst in U.S. history.

We believe the path towards free cash flow of $8.7 billion and a dividend of 39 cents per share by 2014 remains intact, the bank said in a research note.

BP paid a dividend of 29 cents per share for 2011. Some investors had feared BP's ability to grow the dividend could be limited by the legal uncertainty.

Nontheless, even the most optimistic forecasts suggest BP will remain well below its pre-spill payout of 14 cents per share per quarter for years to come.

In addition to the U.S. federal government's claims, BP faces lawsuits from the states affected by the spill, which came after a blast on a drilling rig that killed 11 men.

Analysts at Citigroup said they expected BP to have to pay another $1-2 billion to settle these claims.

(Reporting by Tom Bergin; Editing by Mark Potter)

Oil Spill Settlement