BP 2013 Annual Report Download - page 42

BP Annual Report and Form 20-F 201338
Gulf of Mexico oil spill
We remain committed to meeting our
responsibilities to the US federal, state and local
governments and communities of the Gulf Coast
following the Deepwater Horizon accident.
Analysis of cumulative charges to the income statement
($ billion)
0 105 2015 3025 4035 45
Other fines Functional costs
Spill response Environmental
Headroom remaining
Litigation and claimsaClean Water Act
penalties
a The litigation and claims cost is net of recoveries of $5.7 billion.
We have made significant progress in completing the response to the
accident and supporting economic and environmental recovery efforts in
affected areas.
Completing the response
BP, working under the direction of the US Coast Guard’s Federal On-Scene
Coordinator, continued to complete the Deepwater Horizon operational
response activities. By the end of 2013, operational activity continued on
just 37 of the approximately 4,400 shoreline miles in the area of response.
These 37 shoreline miles were all in Louisiana and were subject to
patrolling and maintenance, final monitoring or inspection, or were pending
final Coast Guard approval at the end of 2013. The US Coast Guard ended
active clean-up in Mississippi, Alabama and Florida in June 2013.
The US Coast Guard has indicated that if oil is later discovered in a
shoreline segment where removal actions have been deemed complete,
they will follow long-standing response protocols established under the
law and contact whoever it believes is the responsible party or parties.
Environmental restoration
BP is responsible for the reasonable and necessary costs of assessing
potential injury to natural resources resulting from the oil spill as well as the
reasonable and necessary costs of restoration as defined under the Oil
Pollution Act of 1990. In 2013 activity was focused on natural resource
damage assessment but some early restoration work has also begun.
Natural resource damage assessment
Scientists from BP, government agencies, academia and other
organizations are studying a range of species and habitats to understand
how wildlife populations and the environment may have been affected by
the accident and oil spill. Since May 2010, more than 240 initial and
amended work plans have been developed by state and federal trustees
and BP to study resources and habitat. The study data will inform an
assessment of injury to natural resources in the Gulf of Mexico and the
development of a restoration plan to address the identified injuries. By the
end of 2013, BP had paid approximately $1 billion to support the
assessment process.
Early restoration projects
While the injury assessment is still ongoing, restoration work has begun. In
April 2011 BP committed to provide up to $1 billion in early restoration
funding to expedite recovery of natural resources injured as a result of the
Deepwater Horizon accident and oil spill. BP and the trustees, as at
December 2013, had reached agreement or agreement in principle on a
total of 54 early restoration projects that are expected to cost
approximately $698 million, including 10 projects that are already in place
or under way.
Projects announced in 2013 include ecological projects that will restore
habitat and resources, as well as projects that enhance recreational use
of natural resources. These projects will proceed through a further
regulatory review and public comment process. Once that process is
complete, BP and the trustees will seek to proceed with approved projects.
BP will provide project funding in exchange for restoration credit to be
applied to the final assessment of natural resource damages.
Gulf of Mexico Research Initiative
In May 2010 BP committed $500 million over 10 years to fund
independent scientific research through the Gulf of Mexico Research
Initiative. The goal of the research initiative is to improve society’s ability to
understand, respond to and mitigate the potential impacts of oil spills to
marine and coastal ecosystems. As at 31 December 2013, the aggregate
contribution by BP was $169 million. The continued fulfilment of this
commitment is one of the conditions of the US government criminal plea
agreement (see below).
Economic recovery
BP continued to support economic recovery efforts in local communities
through a variety of actions and programmes in 2013. By 31 December
2013, BP had spent $12.8 billion on economic recovery, including claims,
advances, settlements and other payments, such as state tourism
grants and funding for state-led seafood testing and marketing. BP has
committed $2.3 billion to help resolve economic loss claims related to the
Gulf of Mexico seafood industry, of which $1.2 billion has been paid in to
the seafood compensation fund but has not yet been distributed to
final claimants.
Plaintiffs’ Steering Committee settlements
BP reached settlements in 2012 with the Plaintiffs’ Steering Committee
(PSC) to resolve the substantial majority of legitimate individual and
business claims and medical claims stemming from the accident and oil
spill. The PSC acts on behalf of individual and business plaintiffs in the
multi-district litigation proceedings in New Orleans (see Legal update
below). During 2013, amounts paid out under the PSC settlements totalled
$2.7 billion.
As part of its monitoring of payments made by the court-supervised
settlement programme for the economic and property damages
settlement, BP identified and disputed multiple business economic loss
claim determinations that appeared to result from an incorrect
interpretation of the economic and property damages settlement
agreement by the claims administrator. See further details under Legal
update below. BP has also raised issues about misconduct and inefficiency
in the facility administering the settlement.
The medical benefits class action settlement provides for claims to be
paid to qualifying class members from the agreement’s effective date.
Following the resolution of all appeals relating to this settlement, the
agreement’s effective date was 12 February 2014. The deadline for
submitting claims under the settlement is one year from the effective date.
OPA claims programme
There is a separate BP claims programme which handles claims under the
Oil Pollution Act of 1990 (OPA) by individuals and businesses who are not
covered by the PSC economic and property damages settlement, who
have opted out of the settlement or who are pursuing claims separately, as
permitted by the terms of the settlement. During 2013, amounts paid out
in relation to the OPA claims programme totalled $31 million.
State and local claims
Several states and local government entities have presented claims for
alleged losses, including economic and property damage, under OPA.
BP has provided for the current best estimate of the amount required to
settle these obligations. BP considers most of these claims to be
unsubstantiated and the methodologies used to calculate them to be
seriously flawed, not supported by OPA, not supported by documentation
and to be substantially overstated. A total of $89 million was paid in relation
to state and local claims in 2013.
For further information on the PSC settlements and state and local claims,
see Legal proceedings on page 257, Financial Statements – Note 2 and
bp.com/uslegalproceedings.