BP Cuts a Deal on the Deepwater Horizon Spill

Just days before BP was set to go to trial with a group of more than 100,000 plaintiffs, the company announced over the weekend that it would agree to a settlement of $7.8 billion dollars. The funds will go to fisherman, local residents, and clean-up workers that were affected by the Deepwater Horizon oil spill that happened in the Gulf of Mexico in April 2010. The group is the largest that is suing BP over the spill.

The outcome is good news for BP. The settlement is about half the worst case scenario amount some industry analysts predicted the company might have to pay. And the amount is significantly less than the $20 billion BP already set aside in a fund to pay for the spill. So far BP has paid out $7.5 billion in clean-up costs and compensation. Lawyers for the Plaintiff's Steering Committee commented that the settlement "does the greatest amount of good for the greatest number of people."

For a company that is trying to move on from a disaster of such grand proportions, the decision to settle was a smart one. It puts the money in the hands of the plaintiffs much more quickly than if the company were to have gone to trial, which certainly helps their perception of the company. And by avoiding a lengthy, dramatic trial, BP can protect it's image and keep damaging headlines off the front page.

Despite the settlement, the trial will still have to continue in order to apportion blame for the spill among the defendants in the case which include BP, Halliburton, and Transocean who owned the oil rig. According to U.S. District Judge Carl Barbier, who is an expert in maritime law and has consolidated the hundreds of spill-related lawsuits into a single case, it will now be delayed to allow for the parties to "reassess their respective positions."

BP stockholders are breathing a sigh of relief at the news. Pending the full financial outcome of the catastrophe, the company's shares have not been performing on par with other oil giants. Following the announcement, BP shares saw a boost in price, coming within a few cents of its 52-week high. Some analysts predict that the settlement could cause a 5 percent increase in the share price over the coming week.

No doubt the company is feeling good about this development. BP's Chief Executive Bob Dudley said in a statement that, "The proposed settlement represents significant progress toward resolving issues from the Deepwater Horizon accident and contributing further to economic and environmental restoration efforts along the Gulf Coast."

However, the settlement doesn't mean that BP can put the disaster behind it. There's still the pending legislation the company filed against Halliburton and Transocean to determine whether those companies should shoulder any blame for the incident. BP is also facing pollution fines from the Department of Justice and the states whose coastlines were impacted by the spill. The U.S. government could also choose to pursue criminal environmental penalties against the company that could reach $17 to $40 billion. BP may have gotten off easy on this one, but it's likely that the $20 billion fund will be sucked dry before all is said and done.

[Image credit: EPI2oh, Flickr]

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Kara Scharwath is a corporate social responsibility professional, marketing consultant and Sustainable Management MBA Candidate. She is currently working as a Graduate Associate in Corporate Citizenship at the Walt Disney Company while pursuing her degree at Presidio Graduate School. Follow her on Twitter @karameredith.