More than two years after the Deepwater Horizon drilling rig exploded in the Gulf of Mexico, causing the death of 11 workers and a massive oil spill, BP has pled guilty to criminal charges and agreed to pay $4 billion in fines to the government, the company said Thursday.
As part of the settlement, BP will also pay $525 million over three years in resolution of claims with the Securities and Exchange Commission.
The British oil company said it would increase its existing $38.1 billion charge against earnings for the spill by $3.85 billion. In total, the company will pay $4.5 billion over five years.
Furthermore, the company stated it was “prepared to vigorously defend itself against remaining civil claims.”
In the terms of resolution, BP agreed to plead guilty to 11 felony counts of misconduct or neglect of ships’ officers, related to the loss of 11 lives in the exposion of the Deepwater Horizon.
However, the settlement does not resolve fines under the Clean Water Act, which could possibly quadruple the civil damages owed by BP if the company is charged with gross negligence under the act. The potential fine for the spill under the act is $1,100 to $4,300 per barrel spilled—$21 billion in a straight-line calculation.
“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,” said Bob Dudley, BP’s Group Chief Executive, in the news release. “From the outset, we stepped up by responding to the spill, paying legitimate claims and funding restoration efforts in the Gulf. 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.”
Thursday’s settlement represents the largest criminal penalty in U.S. history between a private enterprise and the Department of Justice, $3.2 billion over the $1.3 billion fine paid by pharmaceutical company Pfizer Inc. in 2009 for marketing fraud, Reuters reported.
“We believe this resolution is in the best interest of BP and its shareholders,” said Carl-Henric Svanberg, BP chairman. “It removes two significant legal risks and allows us to vigorously defend the company against the remaining civil claims.”
In 2011, BP earned $25.7 billion in profits, and a total of $375 billion in revenues. The company’s announcement had little effect on its stock valuation—in fact, it went up one percent. BP could cover the $4 billion penalty with less than a single quarter’s profit. Here it will be paying it spread out over five years, which has a much lesser impact on quarterly profits. In other words, the fine paid by BP represents a drop in the bucket.
When the 4,593-foot pipe that channeled oil from the sea floor broke on April 20th, 2010, an estimated 4.9 million barrels of oil, and an equivalent amount of gas, spilled out into the Gulf of Mexico. The total damage from the spill remains hard to estimate, given that most of it was invisible to the eye.
Photo credit: AP/U.S. Coast Guard, File