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The share price of BP (LSE:BP.) has gained 4.60% today on the heels of the announcement that BP has agreed to an $18.7 billion settlement with the U.S. federal government and the five affected states on the U.S. Gulf Coast (Texas, Louisiana, Mississippi, Alabama and Florida).
U.S. Attorney General Loretta Lynch noted that “If approved by the court, this settlement would be the largest settlement with a single entity in American history. It would help repair the damage done to the Gulf economy, fisheries, wetlands and wildlife. And it would bring lasting benefits to the Gulf region for generations to come.”
Speaking for BP, CEO Bob Dudley said that, “This is a realistic outcome which provides clarity and certainty for all parties. For BP, this agreement will resolve the largest liabilities remaining from the tragic accident and enable BP to focus on safely delivering the energy the world needs. When concluded, this will resolve not only the Clean Water Act proceedings but also the Natural Resource Damage claims as well as other claims brought by Gulf States and local government entities.”
Investor confidence is likely rising on the the expectation that the sun is beginning to shine through the dark cloud of potential financial devastation. CFO Brian Gilvary’s comments should bolster that confidence: “The impact of the settlement on our balance sheet and cash flow will be manageable and enables BP to continue to invest in and grow its business, underpinned by a resilient and robust financial framework.”
The proposed payment schedule will be paid out over a period of 17 years, beginning with a $1 billion distribution to the individual states once the court approves the agreement. Following that, BP will pay an additional $260 million per year to those states beginning three years after the agreement and continuing through to the 17th year. The company will pay out another $5.5 billion in civil penalty payments in installments at the ends of year one through year 15. A similar schedule applies to Natural Resource Damage payments totaling $7.33 billion .
Interest will accrue on the outstanding amounts will compound annual and be payable in years 15 and 16 of the schedule.
BP will also pay associated costs in the amount of $600 million.
A complete schedule of proposed payment is available elsewhere on our website.
BP Chairment Carl-Henric Svanberg summarized the settlement agreement, saying that, “In deciding to follow this path, the Board has balanced the risks, timing and consequences associated with many years of litigation against its wish for the company to be able to set a clear course for the future. The Board therefore believes that this agreement is in the best long-term interest of BP and its shareholders. The Board set out its position on the dividend at the first quarter and this remains unchanged by the agreement.”
Meanwhile, affected state’s governors and attorneys general have put forward a untied front of relief and appreciation for the resolution relative to its benefit to fund continuing coastal reclamation and restoration projects. Offsetting, but expected, liberal environmentalists, like Fred Krupp of the Environmental Defense Fund, are either bemoaning the inability to undo the damage done or gloating over the settlement, as did the president of the Audubon Society when he said, “You break it – you pay for it.”
BP’s current price of 438.50 is progressing toward its 50-day moving average of 450.92.
