BP settles Gulf of Mexico oil spill disaster for $4.5 billion

Friday November 16, 2012

WASHINGTON -- BP reached a settlement with the U.S. government for $4.5 billion that will end all criminal charges and resolve securities claims relating to the worst U.S. offshore oil spill.

The London-based company announced a $4 billion settlement Thursday with the Justice Department that includes a record $1.26 billion criminal fine, which would be paid over five years. The company agreed to five years' probation and also will pay $525 million to settle Securities and Exchange Commission claims, according to a press release.

Oil spill timeline

BP said it has agreed to plead guilty to 11 felony counts of misconduct or neglect of ships officers related to the 11 deaths that occurred when their oil drilling rig exploded, one misdemeanor count under the Clean Water Act, one misdemeanor count under the Migratory Bird Treaty Act and one felony count of obstruction of justice.

"All of us at BP deeply regret the tragic loss of life caused by the Deepwater Horizon accident as well as the impact of the spill on the Gulf coast region," BP Chief Executive Officer Bob Dudley said in a statement. "We apologize for our role in the accident, and as today's resolution with the U.S. government further reflects, we have accepted responsibility for our actions."

Site leaders charged

Two BP well-site leaders who supervised testing on the Macondo oil well were separately charged, according to court filings Thursday.

The men, Robert Kaluza and Donald Vidrine, became aware of multiple indications that the well was not secure and "failed to maintain control," the U.S. said in the filing in the criminal case against BP in federal court in New Orleans.

Former BP executive David Rainey, the company's vice president of exploration for the Gulf of Mexico, was also separately charged, the U.S. said. Rainey was responsible for estimates on the size of the spill, the U.S. said.

Rainey was charged with obstruction of Congress and false statements.

Kaluza and Vidrine were charged with involuntary man slaughter, seaman's man slaugh ter and Clean Water Act violations.

"It is almost inconceivable that any fair-minded person would blame this hard-working and diligent man for one of the most catastrophic events in the history of the oil business," Robert Habans, a lawyer for Vidrine, said in an emailed statement. "Don Vidrine is innocent of these charges and it is a failure of justice to blame this event on him."

Kaluza is innocent, his attorneys Shaun Clarke and David Gerger, said in a statement.

"After nearly three years and tens of millions of dollars in investigation, the government needs a scapegoat," they said. "Bob was not an executive or high-level BP official. He was a dedicated rig worker who mourns his fallen co-workers every day."

Billions in penalties

The criminal penalty part of the settlement is the largest in U.S. history, eclipsing the $1.195 billion paid by Pfizer for marketing fraud in 2009.

Along with the criminal fine, the resolution with the Justice Department includes a total of $2.4 billion that will be paid to the National Fish & Wildlife Foundation over a period of five years. Another $350 million will be paid to the National Academy of Sciences over that same period.

Thirteen of the 14 criminal charges are related to the accident itself and are based on negligent misinterpretation of the negative pressure test conducted on board the Deep water Horizon, BP said. The final count involves two communications on flow rate estimates BP made to a member of Congress, the company said. Peter Hutton, an analyst at RBC Capital Markets, said the settlement was "positive" because the total was at the "low to midpoint of expectations."

BP faces a maximum possible fine of $17.6 billion for civil environmental violations alone if the company is found grossly negligent by the federal judge overseeing lawsuits stemming from the spill.

The company said in its release that it will "continue to vigorously defend itself against all remaining civil claims and to contest allegations of gross negligence in those cases."

The plea agreement "will pave the way for a civil settlement," said David Uhlmann, a former Justice Department prosecutor who now teaches law at the University of Michigan in Ann Arbor. "BP still faces billions in civil penalties and natural resource damage claims."

The company may also face debarment, or denial of participation in government contracts, as a result of the plea, Uhlmann said. "But it is unlikely to last long, since debarment ends once the company corrects the conditions giving rise to its criminal violations."

Kurt Mix, a former BP engineer, was previously charged with destroying evidence in the probe of the spill.

The April 2010 Macondo well blowout and the explosion that followed killed 11 workers and set off the worst offshore oil spill in U.S. history. The sinking of Transocean Ltd.'s Deepwater Horizon drilling rig and the spill led to hundreds of lawsuits against BP and its partners and contractors.

The Justice Department sued BP in December 2010, alleging the company failed to prevent or contain the spill and seeking fines for each barrel of oil discharged.

The government estimated that more than 4 million barrels of oil were spilled. If BP is found to be grossly negligent, a legal standard the government would have to prove showing the accident resulted from a conscious BP act or omission, it could be fined as much as much as $4,300 a barrel.

BP set aside $3.5 billion to pay potential Clean Water Act fines, using its own estimate of 3.2 million barrels and a maximum fine of $1,100 per barrel without gross negligence.

BP reached a settlement with most non-government plaintiffs in March, agreeing to pay an estimated $7.8 billion. That settlement averted a trial scheduled to determine liability for the disaster. BP agreed to pay most claims for economic loss, property damage and injuries from businesses, property owners and other non-government victims of the spill. BP also established a medical-monitoring program to handle claims from people who contend they are suffering medical problems from the oil or chemicals used to clean it up.

BP and lawyers representing non-government victims of the spill won preliminary court approval of the proposed settlement agreement in May and argued for final approval at a hearing on Nov. 8. A decision is pending.

BP is also facing shareholder claims in federal court in Houston alleging that the company understated the extent of the spill. The investors, who are seeking to be allowed to sue BP in a class, or group, action, say the company downplayed the size of the spill to bolster share prices.


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