BP Settles Deepwater Horizon Oil Spill Lawsuit for $7.8 Billion, Additional Fines Possible

BP and three other energy companies late Friday reached a settlement with thousands of individuals and businesses affected by the 2010 Deepwater Horizon spill that killed 11 workers and fouled the Gulf of Mexico with millions of gallons of oil. Response crews battled the blazing remnants of the BP-operated offshore oil rig, the Deepwater Horizon, in the Gulf of Mexico for approximately three months in 2010.

BP officials said they expect the company to pay out approximately $7.8 billion as a settlement with more than 100,000 plaintiffs who are suing the oil giant and others for their role in the spill.

The settlement came just two days before the case was set to go to trial in New Orleans.

It must be approved by a judge before it goes into effect, and it will create two classes of claims: economic-loss claims and medical claims.

Those under the economic-loss category will include businesses, property owners and individuals along the Gulf of Mexico who sustained economic damage from the oil spill and fire, which lasted for 87 days and was the biggest offshore spill in U.S. history.

The medical claims class will include a wide range of individuals who may have health problems because of the spill, including tens of thousands of clean-up workers. Those individuals may be eligible for medical consultation services for the next 21 years.

While the settlement does not put a cap on the total payments that BP will make, the company estimates that it will cost about $7.8 billion to cover the claims, including about $2.3 billion to help resolve economic-loss claims related to the Gulf seafood industry.

This settlement will provide a full measure of compensation to hundreds of thousands -- in a transparent and expeditious manner under rigorous judicial oversight, Stephen Herman and James Roy, attorneys for the plaintiff's group, wrote in a statement. It does the greatest amount of good for the greatest number of people.

BP said it expects the funds to be paid from a $20 billion claims fund that the London-based company had set aside to cover clean-up and third-party claims.

As a result of the settlement, U.S. District Judge Carl Barbier adjourned the trial before it was set to begin on Monday, to allow court proceedings to focus on the environmental penalties that BP, Anadarko Petroleum, Triton Energy and Transocean may face as a result of violating the Oil Pollution and Clean Water Acts.

Judge Barbier will have to decide if the companies involved were grossly negligent in their handling of the spill at a new trial, the date for which has not yet been scheduled.

Barbier had delayed the start of the trial last weekend in the hope that a settlement would be reached over the weekend.

While BP is best the most well-known company among the defendants, the other companies being sued are significant as well.

Anadarko is one of the largest natural gas companies in the United States. Triton, another defendant, is an oil-field services company, and Transocean is the company that operated the ill-fated rig.

Halliburton, the Houston-based energy services company that provided the cement that finally sealed the well, is being sued by BP in a separate suit to ensure, BP says, that every company involved maintains some level of responsibility for the spill.

The Department of Justice had charged the defendants with civil penalties under the Clean Water Act and unlimited liability under the Oil Pollution Act, for spilling 5 million barrels of crude oil into the Gulf of Mexico between April 20, 2010 and July 2010.

Under the Clean Water Act, defendants can be fined as much as $1,100 per barrel of oil for negligence. If Barbier, who is scheduled to hear the case without a jury, finds that BP and the other defendants were grossly negligent, they could be fined $4,300 per barrel of oil spilled.

That could bring the total payout to as much as $21.5 billion.

Echoes of Exxon Valdez

Besides costing the lives of 11 employees of Transocean, the spill was a catastrophe for marine life in the Gulf, spoiling thousands of livelihoods in the fishing, tourism and travel sectors of states along the gulf coast from Florida to Texas. The spill was probably the worst ever of its kind for an industry that is now ambitiously targeting much of the world's offshore oil and gas fields.

The previous catastrophe most similar to the BP Deepwater Horizon disaster was the Exxon Valdez tanker spill of 1989, which spilled 32 million gallons of oil into Alaskan waters.

The administrator of the Sept. 11, 2001, settlement funds, Kenneth Feinberg, was named head of the compensation fund that has so far have paid out an estimated $6 billion to the BP Gulf oil spill victims.

The liabilities for the defendants will likely be determined by Judge Barbier at trial. They are charged with spilling millions gallons of crude oil into the Gulf between April 20 and July 2010.

The U.S. government asserts they are liable for civil and federal penalties.

David Guest, head of Earth Justice's Florida office, initially filed environmental claims against BP, but eventually the environmental group was removed from the legal proceedings. Guest said last week he'd be surprised if the companies didn't settle before Monday.

Guest estimated a total settlement could be valued at $40 billion.

Whether or not that money includes the $14 billion already put aside for claims remains to be seen, the lawyer said.

BP's Cash Reserve: $18.5 billion

As of Dec. 31, BP reported assets exceeding $272 billion, of which $18.5 billion is cash. Some of that is being used to pay lawyers's fees, including Chicago's Kirkland and Ellis, one of the nation's biggest corporate firms.

The charges allege that the defendants did not take sufficient precautions to keep the Macondo Well under control because they failed to use the best available and safest drilling technology to monitor it; they did not provide constant surveillance of the well; and they did not maintain and use equipment that was designed to ensure the rig's safety. Other organizations such as the Sierra Club tried suing BP, but were blocked by the court.

If the defendants are found grossly negligent, Barbier could award punitive damages awards to businesses and property owners under maritime law.

Another defendant, blowout-preventer maker Cameron International, already settled, and it was joined by Mitsui MOEX Offshore on Feb. 17, which agreed to pay $90 million.

In November, Barbier ruled that Alabama and Louisiana could sue BP under maritime law. In December, BP reached a settlement with Cameron International. Cameron agreed to pay $250 million to BP. The money was placed in the $20 billion trust that BP had put aside to pay for the spill.

The Department of Justice has not wavered in its commitment to hold all responsible parties fully accountable for what stands as the largest oil spill in U.S. history, Attorney General Eric Holder said in a statement following the settlement.

This landmark settlement is an important step -- but only a first step -- toward achieving accountability and protecting the future of the Gulf ecosystem by funding critical habitat preservation projects, Holder added. That statement could indicate that he'll pay close attention to this week's negotiations.

BP, Transocean and Anadarko, the leading players in the ownership of and operation of the Deepwater Horizon rig and Macondo oil well, each filed various petitions for summary judgments. In those petitions, the defendants held the other companies accountable while offering their own unique interpretations of which company is more liable under the law.

The whole affair began on April 20, 2010, when a natural gas blowout on the Deepwater Horizon oil rig traveled back up its wellbore and ignited, causing a fire that burned for two days before the rig sank. As it did, an underwater pipe that connected the rig to the well broke, allowing an estimated 206 million gallons of crude to spew into the Gulf of Mexico for close to three months.