BP Will Pay $18.7 Billion in Damages for Gulf Oil Spill

The tentative agreement stands as the largest environmental settlement in history.

Thick oil from the BP Deepwater Horizon oil spill floats on the surface of the water and coats the marsh wetlands in Bay Jimmy near Port Sulphur, Louisiana, June 11, 2010. BP's liabilities sky-rocketed in tandem with estimates about the scale of the Gulf of Mexico oil spill Friday, as analysts pushed the possible price tag well above four billion dollars. Wall Street experts said the monetary cost of the disaster for BP would be tied to new estimates that put the amount of oil spilled at between one and two million barrels so far, double the previous estimate. (National Journal)

Five years after millions of gallons of oil flooded into the Gulf of Mexico, BP has agreed to pay the federal government and five Gulf states a record $18.7 billion for damage caused by the spill.

Louisiana Attorney General Buddy Caldwell called the agreement with the oil giant "the largest environmental settlement in history" at a press conference on Thursday.

BP has agreed to dole out $7.1 billion to Louisiana, Alabama, Florida, Mississippi, Texas, and the federal government over the course of 15 years for environmental damages. The company will pay a $5.5 billion civil penalty to the U.S. government under the Clean Water Act, the largest ever extracted under the law. $4.9 billion will be paid out to the five Gulf states to settle economic damages over an 18-year period. Finally, BP has also agreed to pay $1 billion to several hundred local government entities seeking damages from the spill.

The agreement is tentative and remains subject to court approval. Years in the making, it seeks to mitigate environmental and economic fallout from the largest oil spill in U.S. history.

Eleven workers died in April 2010 as the result of an explosion on the BP-leased drillship the Deepwater Horizon in the Gulf of Mexico. The blast caused a massive spill of crude oil, which choked wildlife and animals and washed up on beaches. It took BP 87 days to stop the flood of oil into the Gulf. The catastrophe sent shockwaves through U.S. energy policy and regulation that are still being felt today.

"Five years ago we committed to restore the Gulf economy and environment, and we have worked ever since to deliver on that promise," said BP Chairman Carl-Henric Svanberg. "We have made significant progress, and with this agreement we provide a path to closure for BP and the Gulf. It resolves the company's largest remaining legal exposures, provides clarity on costs, and creates certainty of payment for all parties involved."

"The Justice Department has been fully committed to holding BP accountable, to achieving justice for the American people and to restoring the environment and the economy of the Gulf region at the expense of those responsible and not the American taxpayer," Attorney General Loretta Lynch said in a statement following the announcement.

BP said the payments for natural-resource damages and Clean Water Act penalties will begin a year after the agreement is finalized. Those payments, combined with state claims, will total around $1.1 billion annually for most of the duration of the agreement.

The company previously agreed to pay the Justice Department $4 billion after pleading guilty to 14 criminal charges connected to the spill in January 2013.

Democratic Sen. Edward Markey applauded the settlement, but warned that work remains to prevent future spills. "We have not done nearly enough to hold the oil and gas industry to the highest safety standards in the wake of this disaster," Markey said in a statement, adding: "We still need to raise the maximum fines for safety violations. We need to make the liability cap for oil spills unlimited. We need to finalize improvements to the safety of dispersants and other oil spill response technologies."

The Gulf spill prompted the Obama administration to completely overhaul the Interior Department's long-troubled offshore-energy branch, which critics—including the agency's inspector general—said was too cozy with the oil industry that it regulated.

Interior issued several new drilling safety policies and regulations in the months and years after the explosion. That process remains ongoing, with the issuance of draft rules earlier this year setting new standards for subsea blowout preventers, devices meant as a last line of defense against runaway wells that failed to contain the rupture of BP's Macondo well.

Interior also separated energy leasing, environmental oversight, and revenue collection functions to help avoid what the administration concluded were inherent conflicts of interest in what was then called the Minerals Management Service.

The Obama administration scaled back plans to widen offshore development as well. Months after the spill, the White House backed off plans announced weeks before the accident to sell drilling leases off the coasts of mid-Atlantic and South Atlantic states in the 2012-2017 offshore oil-and-gas leasing plan. A draft 2017-2022 plan issued months ago, however, does include some Atlantic Coast leasing.

The disaster quickly spilled into Beltway politics.

It produced an instantly famous political moment in mid-June of 2010. Republican Rep. Joe Barton of Texas apologized in a hearing to BP's then-CEO Tony Hayward for what Barton called a "shakedown" by the White House, which had reached a deal with BP for the company to create a $20 billion fund for victims' damage claims. The comment became fodder for White House and Democratic attacks over the GOP's allegiance to the industry.

A moratorium on deepwater drilling that President Obama imposed after the accident drew strong pushback from Gulf State lawmakers and led to GOP accusations that Obama was stifling energy development and the region's oil-dependent economy.

The pace of drilling permits once the ban was lifted became the stuff of public political battles between Republicans and Michael Bromwich, the former Justice Department official brought in to oversee the drilling-regulation overhaul. The drilling halt and slowdown did contribute to a drop in Gulf of Mexico oil production, but it has since rebounded to pre-spill levels.

This story has been updated.