BP has agreed to pay about $18.7 billion to more than 400 local government entities, Alabama, Florida, Louisiana, Mississippi, Texas and the U.S. following the deadly Deepwater Horizon accident and oil spill.

The agreement, the largest of its kind in U.S. history, comes just more than five years after the April 20, 2010, Macondo spill and explosion in U.S. Gulf of Mexico.

Drillpipe buckled in the blowout preventer (BOP), making it impossible for the blind shear rams to cut the pipe. Millions of barrels of oil flowed from the wellbore, causing widespread environmental and economic damage. Eleven rig workers died. In the years since, failures that caused the accident have led to improved BOP designs and strengthened procedures and inspections.

Moving Forward: Macondo Five Years Later

As part of the agreements between BP Exploration and Production the U.S. government and the five states, $18.7 billion in payments would be made over 18 years to settle claims.

The settlement is, however, still subject to court approval.

“We will work diligently during the next several months to incorporate the agreement in principle into a consent decree, which would then undergo public comment before court approval,” U.S. Attorney General Loretta Lynch said in a prepared statement. “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.”

If all goes as planned, BP will shell out a little more than $1.13 billion annually for the majority of those years in civil penalty, natural resource damage (NRD) and state claims payments, according to the schedule released July 2 by BP. Civil penalty payments total $5.5 billion and NRD payments total $7.1 billion, while state claims come up to $4.9 billion with the remaining $232 million going to NRD.

The agreement provides clarity and certainty for all parties, said Bob Dudley, BP’s group chief executive.

“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,” Dudley said. “For the United States and the Gulf in particular, this agreement will deliver a significant income stream over many years for further restoration of natural resources and for losses related to the spill.”

The agreement is also expected to resolve Clean Water Act, Natural Resource Damage and other claims brought by local government entities and states along the Gulf Coast, he added.

Payments would begin a year after the agreements are finalized, according to BP.

However, the deal does not include claims made by individuals and private businesses that opted out of settlements reached in 2012.

BP said it will “continue to defend those claims vigorously.”

Carl-Henric Svanberg, BP’s chairman, pointed out that the agreement announced July 2 “resolves the company’s largest remaining legal exposures” concerning the accident.

“Five years ago we committed to restore the Gulf economy and environment and we have worked ever since to deliver on that promise,” he said. “We have made significant progress, and with this agreement we provide a path to closure for BP and the Gulf.”

BP Gulf Of Mexico Restoration

Louisiana’s share is more than $6.8 billion.

“This agreement will not only restore the damage inflicted on our coastal resources by the Deepwater Horizon oil spill, it will also allow Louisiana to continue aggressively fighting coastal erosion,” Louisiana Gov. Bobby Jindal said. “These funds will allow us to build on the momentum gained through the state’s increased investment in coastal protection and restoration since 2008.”

The agreement allows institutions like the Texas’ RESTORE Centers of Excellence to move forward with research and science activity plans that rely on spill-related funding. The centers were created following the oil spill to conduct research into environmental, health, economic and energy issues in the Gulf of Mexico region, according to a news release.

“The announced settlement of the BP spill will allow designated Centers of Excellence to move forward and plan how best to use the $5.5 billion settlement of civil penalties under the Clean Water Act,” said Dr. Larry McKinney, director for the Harte Research Institute. “As one of the first RESTORE Centers of Excellence, Texas OneGulf has already designated a series of projects to be implemented with the initial $4.036 million in funding it has been granted, and will use the additional funding to advance research activities related to Gulf issues in Texas.”

To date, BP Gulf Coast-related payments total more than $28 billion in response in clean-up, claims and settlements and NRD funding alone, according to its website. Add to that more than $950 million for restoration projects and state-led tourism campaigns, seafood marketing programs and seafood testing.

The Wall Street Journal reported that the July 2 settlement would “add at least $10 billion to the $44 billion BP has already incurred in legal and cleanup costs, pushing its tab for the spill higher than all the profits it has earned since 2012.”

Contact the author, Velda Addison, at vaddison@hartenergy.com.

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