BP Plc (BP) and Plaintiffs’ Steering Committee (PSC) have reached an agreement of $7.8 billion, over the reimbursements to be made for the 2010 Gulf of Mexico oil spill.
The judge had earlier postponed the trial by a week and rescheduled it for March 5 to give BP and PSC more time to discuss and settle the matter. PSC embodies a group synchronizing the efforts of around 90 law firms on behalf of a condominium of owners, fishermen, hoteliers, restaurateurs and others damaged by the April 20, 2010 explosion of the Deepwater Horizon drilling rig and the subsequent oil spill. A settlement between BP and PSC reduces the complexity of the litigation and signifies a major step toward achieving a global settlement.
The oil spill had catastrophic effects killing eleven people and pouring 4.9 million barrels from the mile-deep Macondo oil well. This is by far the worst offshore U.S.oil spill.
The breach of Clean Water Act along with other laws led the U.S.government to take legal action against the main defendants in the trial–BP,Transocean Ltd (RIG) and Halliburton Company (HAL). Several other companies are also involved in the trial.
Per BP, the estimated settlement of $7.8 billion with PSC covers a significant extent of legitimate economic loss and medical claims arising from the Deepwater Horizon accident and oil spill. The settlement includes an amount of $2.3 billion set aside to especially help cover claims related to the Gulf seafood industry. The terms of the settlement are still required to be submitted to the court for approval.
BP expects to compensate the losses from Gulf Coast Claims Facility– a trust fund which was initially created with an amount $20 billion to pay for such claims. Currently, the fund is left with $9.5 billion. BP had earlier paid $6.1 billion from the fund to reimburse around 220,000 claimants.
Other than these, BP had also shelled out over $22 billion to meet other obligations in the Gulf region and made payments in excess of $8.1 billion to individuals, businesses and government entities. Another $14 billion was spent for operational purposes. BP has also promised to pay $105 million for the enhancement of healthcare facilities among Gulf communities.
The claims would be categorized under two heads — economic loss claims and medical claims. The claimants demanding medical benefits, including workers who facilitated the spill clean up procedure, would be entitled to care for 21 years.
A charge of $37.2 billion, which has already been recorded in BP’s financial statement, inclusive of the $20 billion trust fund amount, is unlikely to be affected by this settlement.
The settlement will help BP to resolve issues with the federal and state governments and move beyond the Gulf oil spill. A settlement between BP and PSC reduces the complexity of the litigation and signifies a major step toward achieving a global settlement. The agreement does not settle the claims BP faces against the US government and drilling partners.
BP holds a Zacks #3 Rank, which translates into a Hold rating for a period of one to three months. For the long term, we maintain a Neutral recommendation on thestock.
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