BP moves to end long legal battle

Last week BP agreed to settle all government lawsuits surrounding the Deepwater Horizon disaster for a total of $18.7bn. Matthew Partridge looks at where the oil giant goes from here, and whether its worth buying.

It has been over five years since an explosion at the Deepwater Horizon oil rig killed 11 workers and pumped millions of barrels of crude oil into the Gulf of Mexico. Since then oil giant BP has had to face a prolonged legal battle, both in terms of private compensation claims and fines under various environmental laws. Last week BP agreed to settle all government (but not private) lawsuits for a total of $18.7bn, although the deal still needs formally to be approved by a judge.

This deal will "add at least $10bn to the $44bn that BP had already incurred in legal and clean-up costs", say Daniel Gilbert and Sarah Kent in The Wall Street Journal. However, it will also "avert years of litigation over the environmental impact of the spill". Meanwhile, "the payments would be stretched out over 18 years at around $1.1bn annually, softening the blow to the company's cash flow". A large part of the settlement is also likely to be tax-deductible, further softening the blow. So despite the scale, it's little wonder the company's share price rose by nearly 4% on the day in relief.

This is the largest such settlement ever agreed in America, but it still looks a "reasonable deal", agrees the Financial Times. However, an agreement "could and should have been reached as soon as the critical facts were clear", which was pretty much within a year of the original spill. BP was negligent, of course, but it was "heroic in its subsequent efforts to stop the leak, clean up the oil and compensate the victims".

Instead, it seems that "the belligerence of the US authorities, and the state and local governments in particular", were the biggest hold-up focusing too heavily on "grandstanding and attempts to wring out the maximum possible payout". For example, claims for economic damage filed by state and local governments were reportedly more than $34bn, yet in the settlement they were resolved for just $5.9bn. It's a lesson the US should bear in mind for the next time there is a "large industrial disaster".

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