BP hopes to have reached settlement with thousands of Gulf Oil Spill victims.

Oil giant BP appears to have come to an out of court settlement worth US$ 7.8 billion with over 120 000 (mostly small) businesses effected by the 2010 Gulf Oil Spill. BP has already reached a US$ 6 billion settlement with another group of claimants; both claims will be met from a US$ 20 billion trust fund already set up by BP to cover the cost of damage to the Gulf region. The court case covering the liability of BP to the group, which was already adjourned for a week to allow negotiations between the parties, has now been further delayed to allow the parties to consider their positions. The judge in the trial is not obliged to accept the settlement, even if both parties are in agreement, and could potentially order the size of the payment to be substantially increased, particularly if he feels the spill was the result of gross negligence. Interestingly BP are themselves claiming the spill was the result of gross negligence - by contractor Halliburton.

Oil continued to pour into the Gulf of Mexico after the Deepwater Horizon oil rig sank. National Geographic.

The oil spill was caused by an underwater explosion that destroyed the Deepwater Horizon oil rig, killing 11 oil workers, and allowed 4.9 million barrels (779 million liters) of oil to enter the Gulf of Mexico. This went on to cover beaches in 7 US States, devastating the local tourism and fisheries industries and having a catastrophic impact on the natural environment.

BP maintains this was the result of negligence by contractor Halliburton who had been responsible for installing the well-head that blew causing the explosion. Halliburton claim they are protected from liability by the terms of their contract with BP, although BP are arguing that this does not apply in the event of gross negligence by Halliburton. An investigation by the US government found that BP, Halliburton and rig owners Transocean had all been guilty of cutting corners on safety to save on costs.

So far BP has paid out US$ 37.2 billion, including the costs of capping the well, which was 1500 m underwater and took 87 days to seal, the US$ 20 billion into the fund to cover compensation to businesses on the Gulf, US$ 1 billion into a fund to help restore the Gulf environment and $13.6 billion for the initial cleanup costs. The company is also being sued by the US Government, and could potentially face fines in excess of US$ 18 billion. Separate claims are being pursued by the state governments in Alabama and Louisiana. BP are claiming Halliburton are responsible for 100% of these costs, though it is thought likely the two companies will reach a settlement. BP is understood to have already reached a settlement with Transocean, though the size of this has not been revealed.

See also Greenpeace activists occupy drilling ship in New Zealand, Chevron & Ecuadorian government seek to use arbitration to settle Amazon damages case, Chevron exploration rig still burning in the Niger Delta, BP takes legal action against Halliburton over Deepwater Horizon disaster and Dutch court upholds fine against commodities giant Trafigura for illegally exporting toxic waste to Côte d'Ivoire.

BP takes legal action against Halliburton over Deepwater Horizon disaster.

On 20 April 2010 an explosion aboard the oil-rig Deepwater Horizon killed 11 men working on the rig and injured 17 more. The explosion was caused by a well-head blowout (an uncontrolled release of oil from a well, after the failure of a pressure system) that left oil gushing into the waters of the Gulf of Mexico at a rate of about 62 000 barrels per day (9.86 million liters per day).

Fire in the aftermath of the explosion aboard the Deepwater Horizon.

It took until 15 July for engineers to cap the well, during which time the well released approximately 4 900 000 barrels (779 000 000 liters) of oil into the Gulf (the amount being released per day fell during this period, due to the reservoir feeding the well becoming depleted) making this the largest ever accidental oil spill.

The Deepwater Horizon was operated by the offshore drilling contractor Transocean on behalf of BP, the license holder of the Macondo Prospect oilfield, off the coast of Louisiana, on which the rig operated.

The resultant oil spill covered a large area of the Gulf, and lead to oil slicks washing up along much of the US Gulf Coast, severely effecting local industries, particularly shrimping and tourism, and having a devastating effect on the Gulf's environment.

Map of the extent of the Gulf oil spill over time; the darkest areas, being covered by oil for the longest time (16-18 weeks), the lightest for under three weeks. Image from the European Space Agency.

Since the disaster BP has been forced to pay out US$27.1 billion in costs, a bill which is expected to rise to about US$42 billion. This has been criticized as inadequate by environmental groups, who have suggested both that the amount is insufficient, and that it is wrong for BP to be able to offset the expense against tax.

This week news emerged that BP is brining legal action in a New Orleans Federal Court against Texas-based oilfield services contractor Halliburton, who fitted the well-head that blew, for the total cost of the cleanup operation. Halliburton are fighting the claim on the basis that its contract required BP to indemnify it against all damage claims; an argument that BP rejects on the grounds that Halliburton were 'grossly negligent'.

The move is an unusual one, as the oil industry does not usually like its practices subject to the level of public scrutiny that comes with high-profile court cases, and therefore ends to avoid such cases. BP has already reached an out of court settlement with Transocean worth $250 000 000.

Oil cleanup workers on a beach in Alabama.

As oil reserves have run low oil companies have began to explore more remote and hard to access areas, such as the deep seas and the Arctic Ocean. At the same time many large companies (not just in the oil industry) have been accused by environmental and safety campaigners of developing a culture of cost cutting at the expense of employee safety and environmental protection, often with the apparent consent of national politicians. After the Gulf spill a Commission set up by the Obama Administration found that there had been almost no safety regime aboard the Deepwater Horizon, and that money had been a factor in this.

All of which makes the willingness of both parties to risk a court action, with the risk of increased public scrutiny of practices both aboard the Deepwater Horizon and in the wider industry, not to mention substantial legal costs, is even more remarkable. It is clear that neither party considers the expenses arising from the incident to be bearable. In the light of which it is to be hoped that in future there will be a wider appreciation of the benefit of preventative, rather than remedial, measures within the wider oil industry.

See also Dutch court upholds fine against commodities giant Trafigura, Oil spill off the coast of Nigeria and Greenpeace activists occupy the offices of Cairn Energy.