Home > BP PLC (NYSE:BP): The Final Cost Of The BP Oil Spill Settlement

BP PLC (NYSE:BP): The Final Cost Of The BP Oil Spill Settlement

November 16th, 2012

Jeff Uscher: The BP oil spill settlement finally has a price: It will cost the energy giant $4.5 billion, the largest fines ever levied against a corporation by the U.S. government.

BP plc (NYSE:BP) accepted criminal responsibility today (Wednesday) for the 2010 Deepwater Horizon oil rig explosion in the Gulf of Mexico. BP plead guilty to 14 criminal counts, including manslaughter.

A $4 billion chunk of the pay will go toward settlement with the U.S. Justice Department and paid over five years, mostly to environmental agencies. Another $525 million will be paid over three years toward claims with the U.S. Securities and Exchange Commission (SEC) regarding trading in BP shares following the accident.

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“This marks both the single largest criminal fine – more than $1.25 billion – and the single largest total criminal resolution… in the history of the United States,” U.S. Attorney General Eric Holder said during the announcement in New Orleans. “I hope this sends a clear message to those who would engage in this wanton misconduct that there will be a penalty paid.”

Holder announced a separate 23-count criminal indictment against two BP drilling supervisors.
“In the face of glaring red flags indicating that the well was not secure, both men allegedly failed to take appropriate action to prevent the blowout,” Assistant Attorney General Lanny A. Breuer, head of the criminal division, said today.
Holder also announced an indictment against BP vice president David Rainey for hiding information from Congress and lying to law enforcement officials.

BP shares have been trading higher in New York following news of the BP oil spill settlement, but lost some gains in the afternoon.

Although Wall Street analysts were encouraged by the deal, it doesn’t erase total uncertainty surrounding BP’s costs.

The Final Cost of the BP Oil Spill Settlement

Today’s BP oil spill settlement resolves criminal charges from the U.S. government, BP could still incur costs related to civil and private claims and penalties from the Clean Water Act and other regulations.

Barron’s estimates that BP could face a $5.4 billion find under the Clean Water Act, but that could soar as high as $21 billion for gross negligence.

BP has reserved $38.1 billion for oil spill liabilities, but the final cost is still uncertain. The company announced it plans to make a final payment this year to a $20 billion trust fund created to cover oil spill related costs.

Even though not all of the charges against BP will be resolved in today’s oil spill settlement, it has already been costly.

The company has sold more than $30 billion in assets to pay for spill-related costs, spent about $14 bill on clean-up costs, and paid or agreed to pay another $16 billion in compensation.

According to Reuters, the oil spill damage has dropped BP from second to fourth in terms of top western world oil companies by value.

Today’s BP oil spill settlement is a step in the right direction. Perhaps the biggest issue holding back BP’s share price is the continued uncertainty over the final cost of the oil spill settlement.

Written By Jeff Uscher For Money Morning

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