BP Near To Reaching Settlement With DOJ On Deepwater Horizon Oil Spill

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BP plc (NYSE:BP) intensified its negotiations with the United States Department of Justice to resolve the civil and criminal lawsuit, related to the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, over the last two weeks. The company is close to reaching a settlement agreement with the federal government, according to the report from the Wall Street Journal.

BP plc (NYSE:BP) submitted a $7.8 billion settlement with the victims of the oil spill. A court hearing is scheduled in January for the approval of the settlement proposal. The DOJ does not oppose BP’s settlement proposal with the victims; however, the agency filed a memo last month, asking the court to open the possibilities that BP plc (NYSE:BP) should still be liable for damages related to the oil spill. The DOJ argued that the full extent of the damages caused by oil spill was not yet determined.

In addition, the DOJ alleged that BP committed gross negligence, willful misconduct, and practiced a culture of corporate recklessness in managing the oil spill. BP denied the allegations and promised to submit evidence during the hearing on January, to prove that it did not commit gross negligence.

Some of the key points that need to be determined by the DOJ in reaching a settlement with BP plc (NYSE:BP), is the extent of damage of the oil spill, degree of corporate negligence, and proper government regulations that will be used to assess the penalties against the company.

A previous report from the Financial Times cited that the DOJ wants BP to pay $15 billion. Many believe that the penalty could increase to as much as $21 billion in civil penalties under the Clean Water Act, if the company is indeed guilty of gross negligence.

According to sources familiar with the case, the DOJ is considering use of the Natural Resource Damage Assessment provision of the Oil Pollution Act to assess the penalties against the oil company. Legal experts opine that it would be beneficial for BP to settle the case under the Oil Pollution Act, because it allows the company to reduce its tax liability by deducting the assessed penalties.

The report from WSJ cited that House Representatives from the states of Alabama, Texas, Mississippi, and Florida sent a letter to Attorney General Eric Holder, opposing a settlement using the Oil Pollution Act “that disproportionately applies penalties” over the Clean Water Act.

Under the Clean Water Act, the penalties cover economic losses, while the Pollution Act requires the fines to be used for environmental remediation. The Congress guaranteed 80 percent of the penalties assessed through the Clean Water Act would be distributed to the states affected by the oil spill. The federal government controls the fines under the Oil Pollution Act.

BP estimated a maximum cost of $37.2 billion related to the oil spill. The company expects to raise $38 billion from the sale of some of its assets by the end of 2013. The company recently agreed to sell its Texas City  Refinery  to Marathon  Petroleum for $2.5 billion.

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