While an $18.7 billion settlement might sound like a win for the communities affected by the 2010 Deepwater Horizon oil rig explosion, BP ran a victory lap last week—because analysts and company executives expected a harsher penalty for a catastrophe that killed 11 rig workers and spilled millions of gallons of crude oil into the Gulf of Mexico.
In a release Thursday, the U.S. Public Interest Research Group noted that BP will be able to write off $13.2 billion of the settlement as an ordinary cost of doing business, since it is not categorized as a penalty. “A judge had declared the oil spill was the result of gross negligence. It is outrageous for BP to treat any portion of these payments as an ordinary business expense. We call on the company to promise that it will not write these payments off as tax deductions,” said Senior Analyst Phineas Baxandall.
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“We also call on the Justice Department to make public the full language of the settlement on its website.”
As for BP, “it makes me feel like the company can now plan its future,” CEO Robert Dudley told The Times. “It allows us to have this manageable cash flow, including increasing a commitment to investment in the U.S., which was increasingly uncertain for us.”
BP’s share price rose 5% after the settlement was announced. “Every aspect of this deal is better than what both we and the market were expecting,” said Stephen Simko, director for energy research at Chicago-based Morningstar, Inc.
“With the settlement, BP executives breathed a sigh of relief and Wall Street analysts who cover the company declared a victory for it, albeit only compared with the potential damages it had faced,” the Times reports. “BP and the analysts emphasized that $18.7 billion—an average of just over $1 billion to be paid annually over 18 years—would be a manageable burden for a company that earned a profit of $2.6 billion in the first quarter despite low oil and gas prices.”
“Wall Street analysts praised the settlement for dealing with almost all of the company’s major liabilities, and its penalties are lower than many expected under the federal Clean Water Act as well as settlements with the gulf states,” Reed and Krauss write. “Payments to the states and federal government will not begin for another year, giving the company relief at a time when revenue is dropping because of the 40% drop in oil prices over the last year. Much of the payment will be tax-deductible.”
