Deepwater Horizon Disaster: Anadarko Settles with BP for $4 Billion

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October 17, 2011

LONDON—BP PLC on Monday said it had reached a $4 billion out-of-court settlement with Anadarko Petroleum Corp. to settle claims related to the deadly explosion and oil spill at a U.S. offshore drilling platform, sending its shares sharply higher.

Anadarko followed Japan’s Mitsui & Co. Ltd. and Weatherford International Ltd. in agreeing to pay BP to settle claims related to the Deepwater Horizon platform disaster, which killed 11 and led to the largest accidental marine oil spill in U.S. history. Drilling contractor Transocean Ltd.’s Deepwater Horizon rig had been leased by BP, while Anadarko and Mitsui also held stakes in the Macondo prospect.

Anadarko also agreed to drop its gross negligence claims against BP and transfer to BP the 25% interest it still holds in the Macondo well, which caused the devastating oil spill.

Like the Mitsui deal, BP’s pact with Anadarko shelters the Houston-based company from claims brought by private businesses and property owners seeking compensatory damages. But it doesn’t protect Anadarko from punitive damages or penalties that might come from the U.S. government. Civil-liability trials on the matter are scheduled to begin in February.

By early afternoon, BP shares were up 4.3% on the news.

Anadarko agreed to pay BP $4 billion—less than the $6.1 billion that BP had most recently billed Anadarko for its share of the damages. However, the fugure was more than some analysts expected.

Mitsui, the third partner on the well with a 10% interest, agreed in May to pay BP $1.06 billion, less than half the $2.14 billion that BP had billed it for its alleged share of clean-up costs. Using the same calculation, analysts had anticipated Anadarko might settle for around $2.66 billion.

BP said it will put the money into the $20 billion trust it has set up to cover the costs of compensation and clean up following last year’s oil spill in the Gulf of Mexico. Anadarko will also transfer over to BP the 25% interest it holds in the Macondo prospect.

“This settlement represents a positive resolution of a significant uncertainty, and it resolves the issues among all the leaseholders of the Macondo well,” said Bob Dudley, BP group chief executive. Contractors Transocean and Halliburton Co. should now step forward to meet their obligations to fund the economic restoration of the Gulf, he said.

Anadarko Chief Executive Jim Hackett said: “This settlement agreement with BP is the right action for our stakeholders, as it removes significant uncertainty regarding future liabilities and associated risks.”

The agreement is “a significant positive for BP,” said Royal Bank of Canada analyst Peter Hutton, who pointed to the encouraging precedent it could set in BP’s discussions with Transocean and Halliburton. “While there is no direct onus on these parties to settle as a result of Anadarko’s agreement, the elimination of claims of gross negligence might provide an important element of support for BP,” said Hutton.

In addition to dropping their claims against one another, BP said it has agreed to give Anadarko a 12.5% interest in any insurance claims or other third party recoveries in the future exceeding $1.5 billion, with a total cap of $1 billion.

Dow Jones & Company, Inc.

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