Money Matters - Simplified

Anadarko to pay BP $4bn to settle oil spill claims

In April 2010, an explosion aboard Deepwater Horizon resulted in the deaths of 11 workers and the worst oil spill in the U.S. history.

Anadarko Petroleum Corporation (NYSE: APC) is set to pay BP PLC (NYSE: BP) $4 billion under an agreement struck between the two to settle all claims among them relating to last year's Gulf of Mexico oil spill.

In a press release, BP said Anadarko would stop pursuing claims of gross negligence against the oil giant, and would transfer its 25 percent interest in the Mississippi Canyon block 252 (Macondo) well to BP.

In return, Anadarko said BP will release it from outstanding invoice claims of $6.1 billion recorded for its proportionate share of costs in the spill cleanup.

BP said it would apply the cash payment to the $20 billion trust it established to meet claims of individuals, businesses and the government, as well as the cost of the natural resource damages arising out of the disaster.

Anadarko, being a 25 percent partner in the well, would have had to pay a quarter of the cleanup costs, compensations and fines. The only way for it to sidestep this responsibility was if it could prove that BP was grossly negligent, which in turn would have added about $18 billion to BP's load of fines.

The Gulf spill
In April 2010, an explosion aboard Deepwater Horizon, an offshore oil rig drilling in the Gulf of Mexico, resulted in the deaths of 11 workers and the worst oil spill in the history of the United States.

Lapses in operational safety have been blamed for the explosion.

Hundreds of lawsuits have been filed against the well's owners and operators following the accident, including claims by fishermen, hotel operators and others in the tourism industry who faced loss of business due to the spill.

Anadarko, being a 25 percent partner in the well, would have had to pay a quarter of the cleanup costs, compensations and fines. The only way for it to sidestep this responsibility was if it could prove that BP was grossly negligent, which in turn would have added about $18 billion to BP's load of fines.

“The settlement amount, equivalent to approximately $5 per share after tax, eliminates all significant exposure to historical and future claims,” Anadarko's Chairman and CEO Jim Hackett said.

Calling all involved to meet obligations
BP's chief executive, Bob Dudley, called on others, including Transocean Limited (NYSE: RIG) and Halliburton Company (NYSE: HAL), who were involved in the drilling, to resolve disputes as well.

“There is clear progress with parties stepping forward to meet their obligations and help fund the economic and environmental restoration of the Gulf. It’s time for the contractors, including Transocean and Halliburton, to do the same,” he said.

In May, BP had reached a settlement with Mitsui & Company, a 10 percent partner in the Macondo well, taking a payment of $1.1 billion to cover its share in the cleanup costs.