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Harry Stevens headshot

BP to Pay Record Fines for Deepwater Disaster

BP has reached an agreement with the federal government to accept criminal responsibility for the Deepwater Horizon oil rig disaster and to pay over $4.5 billion in fines.

The settlement is in relation to the April 2010 explosion on the Deepwater Horizon rig, under lease to BP by Transocean, which killed 11 crewmen and caused severe damage to the commercial and tourism industries of coastal regions off the Gulf of Mexico, where it had been operating.

Still, BP's legal troubles are far from over. The company faces heavy civil penalties for the pollution unleashed during the most severe offshore oil spill in U.S. history. BP has already paid out more than $9 billion in claims to business and individuals, although that figure will likely rise significantly.

“We believe this resolution is in the best interest of BP and its shareholders,” said Carl-Henric Svanberg, BP’s Chairman. “It removes two significant legal risks and allows us to vigorously defend the company against the remaining civil claims.”

The two significant legal risks to which Svanberg is referring are severe charges from the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission. The oil producer will pay $4 billion to the DOJ over a period of five years, representing the largest penalty ever leveled by the organization. BP will also pay $525 million over a period of three years to the Securities and Exchange Commission for misleading investors about the oil-flow rate in the two weeks after the explosion.

When all was said and done, BP agreed to plead guilty to 11 felony counts of Misconduct or Neglect of Ships Officers relating to death of 11 crewmen; one misdemeanor count under the Clean Water Act; one misdemeanor count under the Migratory Bird Treaty Act; and one felony count of obstruction of Congress.

In addition to the costs of litigation, BP has suffered critical damage to its image in the aftermath of the disaster. The company lost over half its value in slightly more than two months following the accident. The company's stock price remains at less than two-thirds of what it was before the accident.

“Since the spill, we have worked hard to rebuild confidence in the company,” said Bob Dudley, who replaced Tony Hayward as CEO after Hayward failed to adequately manage the crisis. “We take seriously not only our commitment to safety and operational excellence but also our communications with stakeholders, including the public, the government and our investors.”

Immediately after the accident, BP launched an internal investigation and released the results to the public. The company has worked hard to centralize and standardize the processes by which it monitors oil well safety and operations, creating a centralized Safety and Operational Risk organization, a centralized Global Wells Organization, and adopting new deepwater drilling standards in the Gulf of Mexico.

In all, BP has coughed up more than $14 billion in operational response and clean-up costs. But the company has also spent millions on public relations campaigns to communicate its progress to stakeholders.

In the three months following the disaster, BP spent $93 million on advertising, more than three times as much as it had spent in the previous year, to apologize for the spill and pledge to do better. Again in late 2011 and early 2012, BP aired an ad campaign across the U.S. to promote the progress the company has made in cleaning up the spill.

Such campaigns have been the target of bitter criticism from those who say that BP's communications efforts are little more than propaganda. Members of the Gulf coast’s fishing and tourism industries say their businesses have yet to recover.

"When you have a lot of money, you can pretty much get any point across," Clint Guidry, head of the Louisiana Shrimp Association, told the Huffington Post. "It's kind of like indoctrination."

[image credit: Marine Photobank, Flickr]

Harry Stevens headshotHarry Stevens

Harry Stevens is a freelance reporter covering climate change, corporate social responsibility, social enterprise, and sustainable finance. Harry has contributed to several media outlets, including Justmeans, GreenBiz, TriplePundit, and Sustainablog. You can follow Harry on Twitter: @Harry_Stevens

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