The ink has dried on BP's settlement with the U.S. Department of Justice for damages and penalties arising from the oil-rig fire and undersea oil well blowout in the Gulf of Mexico in 2010. BP has agreed to pay $20.8 billion, up from the $18.7 total announced in July. The New York Times has a report (see: "BP Settlement in Gulf Oil Spill Is Raised to $20.8 Billion," by Coral Davenport and John Schwartz). "The settlement ... includes civil claims under the Clean Water Act, for which BP has agreed to pay a $5.5 billion penalty, the largest civil penalty in the history of environmental law," the Times reported. "Also, it includes natural resources damages claims under the Oil Pollution Act, for which BP has agreed to pay $7.1 billion, on top of the $1 billion it previously committed to pay for early restoration work. In addition, the settlement includes economic damages claims, for which BP has agreed to pay $4.9 billion to the five gulf states — Alabama, Florida, Louisiana, Mississippi and Texas — and up to $1 billion to local governments. Louisiana, the hardest hit of the states, will receive $5 billion of the $8.8 billion allocated for restoration."
Twenty billion dollars is a huge chunk of change. But the payout won't cripple BP by a long shot, analysts say — in part, because the company has almost two decades to make good. In fact, the settlement "liberates us," an unnamed executive told the Financial Times (see: "BP: Into uncharted waters," by Christopher Adams and Ed Crooks). "The company will pay a little over $1bn a year, a sum reduced by writing off a portion against taxes," the Financial Times reported. "The group would be immune from further federal, state or local prosecution relating to the disaster."
"While the exact present day value of the total payout is subject to some interpretation, it will certainly equal less than $18.7 billion in 2015 dollars by the time all the checks are written," commented Michael Conathan, Director of Ocean Policy at the Center for American Progress, at the website Alternet.org (see: "The True Value of BP’s $18.7 Billion Settlement," by Michael Conathan). "As any economics student will tell you, money loses value over time." Depending on the assumptions about "discount rate" or "net present value," said Conathan, it's reasonable to value BP's promises at something closer to $9 billion in today's dollars if paid as a lump sum.
So what about those tax writeoffs? "US PIRG estimated the total of tax-deductible elements at $15.3 billion, producing a "tax windfall" of $5.35 billion, according to PIRG's Michelle Surka," reported the Los Angeles Times (see: "BP's $20.8-billion oil spill settlement may give it a huge tax deduction," by Michael Hiltzik). As law professor David Uhlmann, former chief of the Justice Department's environmental crimes section, told the Times, "If the Justice Department were determined to make BP shoulder the equivalent of a non-deductible penalty it could achieve the same end simply by extracting a higher settlement to net out the tax break." But with oil prices tumbling recently and BP facing an uncertain future, the government may have decided to leave well enough alone.
Still unresolved is how the money will be spent. And at least one local government is considering a proposal to put some of the cash in its own employees' pockets, the New Orleans Times-Picayune reported in July (see: "Jefferson moves to spend BP money on raises, despite Grand Isle plea," by Ben Myers). "Grand Isle leaders pleaded for a share of Jefferson Parish's $45 million BP settlement Wednesday (July 22), stressing the disproportionate harm that their town and Jean Lafitte suffered in the 2010 Gulf of Mexico oil disaster," the paper reported. "But at least part of the money would instead go to parish employee paychecks under a proposal introduced during the council's annual Grand Isle meeting. Councilman Ben Zahn's measure would ensure that the settlement provides 5 percent raises for about 3,000 employees. Anything remaining would be split between the general fund and capital projects in the five council districts."