On trial’s eve, BP talks may yield $16b package

NEW ORLEANS — As settlement talks continued Sunday on the eve of a trial against BP stemming from the 2010 explosion of a drilling rig in the Gulf of Mexico, the details of an offer by federal and state officials to the oil company started to emerge.

The plan, worth a total of $16 billion, would limit the fines paid by BP under the Clean Water Act to $6 billion, a proposal that could help reduce its tax liability, said one person briefed on the plan who spoke on the condition of anonymity.

BP would also pay $9 billion in penalties to cover damages to natural resources as well as the cost of restoration, that source said. The remaining $1 billion would be set aside in a fund that could be tapped if unanticipated environmental damages related to the spill developed.


No one at BP, the Justice Department, or the states involved has commented on any settlement proposal, but several lawyers briefed on the negotiations said that a $16 billion proposal had been made. The affected states are Alabama, Florida, Louisiana, Mississippi, and Texas, although only Alabama and Louisiana are participating in the trial.

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Even if settlement talks slow or stall, the proposal represents a big breakthrough for several reasons, lawyers briefed on the talks said. For one thing, it represents the first time that Louisiana, which was hardest hit by the spill and would receive the largest payout of any state from a settlement, has participated in an offer.

In addition, the proposal signals the first agreement between states and the federal government on two other crucial issues: a rough plan for how the states would divide any settlement money, and how the settlement would balance fines and penalties against BP.

In any deal, BP would want to pay penalties as opposed to fines, because penalty payments, like those that cover damages to natural resources, are tax-deductible, while payments for fines, such as for Clean Water Act violations, are not.

All parties said they were prepared to go to trial. On Sunday evening, it appeared that opening arguments would proceed, though Judge Carl J. Barbier of US District Court in New Orleans could delay them if the parties in the case told him that settlement talks were progressing.


The first phase of the trial, expected to last three months, will determine whether BP or its contractors were grossly negligent in causing the accident, which killed 11 workers and soiled hundreds of miles of beaches from Louisiana to Florida. The accident occurred when a drilling rig leased by BP, the Deepwater Horizon, exploded, causing an estimated 4 million barrels of oil to spill.

If Barbier were to find BP grossly negligent, the company could face fines of up to $17.6 billion under the Clean Water Act. If the company and its contractors were found to have acted negligently, a less-severe standard, the per-barrel fines would be only one-quarter of that, or about $4 billion.

The higher fine would require that Barbier agree with the United States that 4 million barrels of oil spilled. BP says the estimate is exaggerated.

In time, the company will also be assessed penalties under a separate federal statute, for environmental damages and remediation costs. Estimates of those penalties range widely, from $5 billion to $20 billion, with some projections estimating current costs and higher ones reflecting potential future effects on the Gulf, lawyers said.