HOUSTON -- A late-night email was the first indication of yet another big announcement about to be issued concerning the 2010 Gulf of Mexico oil spill and its impact.

The message, delivered to the press at about 1:00 a.m. CST time yesterday, was from oil and gas giant BP PLC, the company held most responsible for the accident that killed 11 offshore rig works and spilled millions of barrels of oil into the Gulf. In it, BP confirmed that it was in the last stages of negotiations over a criminal settlement but cautioned that no final deal had been reached, in an apparent attempt to get ahead of the rumor mill churning out fresh speculation about the case.

While asking observers to be patient, BP also warned investors that the deal reached would not keep the company clear of any environmental fines that the United States federal government could still levy against it.

The world didn't have to wait long (Greenwire, Nov. 15).

As dawn broke and the markets opened, the company put the news out: BP agrees to pay criminal penalties to the U.S. Department of Justice of $4 billion to be paid out over a period of five years. Three employees also face criminal manslaughter charges, raising the possibility that individuals implicated in the deadly Deepwater Horizon rig explosion could serve prison sentences.

Another $525 million will be paid out over three years to the Securities and Exchange Commission. BP has also agreed to plead guilty to several charges laid against it.

The settlement must still be approved by a federal court. If it does, then the deal will become the largest criminal fine the U.S. government had ever charged any company with.

"As part of the resolution, BP has agreed to plead guilty to 11 felony counts of Misconduct or Neglect of Ships Officers relating to the loss of 11 lives; 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," the company said. "Thirteen of the 14 criminal charges pertain to the accident itself and are based on the negligent misinterpretation of the negative pressure test conducted on board the Deepwater Horizon."

The company acknowledged two years ago that a faulty reading of a negative pressure test taken while the Deepwater Horizon was drilling the Macondo offshore well, alongside the failure of the blowout preventer at the wellhead, contributed to the blowout. It took months to get the leak under control as the oil and gas industry at the time didn't have the type of readily deployable capping systems that could have stopped it earlier.

A little under 5 million barrels of oil is estimated to have leaked into the surrounding waters, fouling coastlines from Louisiana to the Florida Panhandle. Environmental groups, federal and state governments have launched a Gulf Coast restoration initiative in response to the spill aftermath.

Last December the Obama administration announced a $50 million program to address wetland loss, coastline erosion and the "dead zone" that forms in the Gulf each summer caused by nutrient runoff from agriculture operations along the Mississippi River. The settlement with DOJ announced yesterday will now steer considerably more amounts of money to help pay for such efforts.

Of the $4 billion being collected, $2.4 billion will go to the National Fish and Wildlife Federation. Some $350 million will go to fund efforts at the National Academy of Sciences.

Conservation groups said they are pleased with the terms of the settlement.

"This is a step forward in settling all of BP's debts to the Gulf Coast citizens who deserve for BP to be held fully accountable to the maximum extent of the law," said Katie Cline, a spokeswoman at the Ocean Conservancy, one of the groups involved in Gulf Coast restoration work.

"BP pleading to criminal charges, before a global settlement is reached, is some vindication for those who deserve to know the truth about why this disaster occurred," Cline added. "However, this is not the end of the road."

Clean Water Act penalties ahead

The company faces much more financial trouble ahead.

And the cumulative effect of all the lawsuits, penalties, cleanup costs and voluntary payments made to assist those affected by the spill has some worried that the U.S. Gulf of Mexico has become the official playground of only the world's largest oil and gas companies. The risk may be too great for smaller up-and-coming offshore companies to contemplate.

"It establishes a precedent, which is not particularly a good one, for other oil and gas operators that are operating in U.S. jurisdiction," said Eric Smith, associate director of the Tulane Energy Institute at Tulane University. "The more money they [BP] spend, the higher the hurdle is for other operators, even the very large operators, to operate in U.S. waters.

"It will have a chilling effect," Smith added.

Amid the various settlements announced over the past months, the biggest open question remaining is how much U.S. EPA will penalize BP for violating the Clean Water Act. EPA could issue fines of anywhere between $1,100 to $4,300 per barrel. Placing a fine on the high end of that scale could cost BP nearly $20 billion in additional penalties.

That is on top of the $38 billion hit the company estimates it will take from the entire episode. The $4 billion DOJ criminal penalty raises the estimated losses to BP's earnings to about $42 billion.

Back in March, BP announced a tentative agreement with the Plaintiffs' Steering Committee, a group of attorneys organized to represent hundreds of individuals who filed multiple separate lawsuits against BP claiming damages. A fairness hearing on that agreement was held at a federal court house in New Orleans on Nov. 8.

Though the Plaintiffs' Steering Committee says there is no ceiling on the amount BP will eventually pay out to settle lawsuits, BP told investors that it expects the total cost of the settlement will come to about $7.8 billion. That money will come from an emergency trust fund the company established shortly after the spill to cushion itself from the expected legal storm that was ensuing.

BP estimates that it has already paid out roughly $9 billion to individuals and companies affected by the Macondo well spill. The deal is still under review by the courts.

And it remains to be seen whether other companies implicated in the spill will face charges as well, namely BP's subcontractors on the project Transocean and Halliburton.

As the principal operator, BP was held most liable for damages. Transocean, the owner and operator of the now-destroyed Deepwater Horizon drilling rig, has so far been cleared from civil liability by the court overseeing the spill due to a contractual clause whereby BP agreed to indemnify Transocean of responsibility for any damages caused during work.

But at a speech in New Orleans in August, James Watson, director of the Bureau of Safety and Environmental Enforcement, said the government will be holding third-party contractors liable for spills when it is clear that their employees are implicated, at least in the future. There is no word yet on whether any branch of the government will act on this principle in the 2010 Gulf spill case (EnergyWire, Aug. 20).

More oil floating in Gulf

On top of all this, oil associated with the spill is still being discovered in the environment nearly two-and-a-half years since the well was finally plugged with cement and permanently abandoned.

Earlier this week the New Orleans Times-Picayune reported that the Coast Guard has ordered BP to conduct yet another inspection of the Macondo well head and the collapsed equipment around it using a remotely operated vehicle (ROV). The requested inspection came about due to the apparent discovery of a 1-mile-long oil sheen floating on the surface near where the rig collapse occurred.

About a million barrels of oil leaks into the Gulf of Mexico each day from natural seeps, so the sheen could be a natural phenomenon. But extra attention will likely be paid to this newest discovery anyway considering recent events.

A floating oil slick investigated in September and October was found to have emanated from the 2010 disaster. By mid-October BP, partnering with Transocean, determined that the slick was being caused by a leak of oil from an 86-ton steel containment dome that was used in early attempts to stop the leaking well.

BP ultimately managed to seal the leak. And the company says that multiple investigations of the abandoned Macondo well itself and relief wells drilled to help stop the leak show that all are secure and are not leaking any oil (EnergyWire, Oct. 19).

Stocks hold steady

Despite the announced settlement and the reminder of the damage to BP's reputation from the spill, stock traders barely reacted to the news. Shares in the company traded mostly flat on the New York Stock Exchange yesterday.

That could be due to the company's gradually improving overall financial health.

Late last month BP reported 40 percent growth in third-quarter 2012 earnings over the previous quarter, from $3.7 billion to $5.2 billion. The company said it has also finished paying into its $20 billion Gulf of Mexico Trust Fund set up in the wake of the spill. A final payment of $860 million completed the fund at the beginning of this month (EnergyWire, Nov. 2).

The company managed to raise the cash for the trust fund by selling off a host of what it said were non-core assets. The list of divestments includes a handful of offshore oil and gas properties in the Gulf, sold to Plains Exploration and Production Co. for $5.5 billion in September.

Looking back at the spill, many working in the oil and gas industry here often remark that in a way it was lucky to have this large of a spill occur to BP, a massive company that probably controls nearly 2 percent of the world's daily oil production and has the financial wherewithal to work with the government to fix the spill and help heal the rifts that it created. A much smaller offshore driller may have simply declared bankruptcy and walked away while the oil was still flowing, causing an even greater long-term problem for all offshore drillers, the theory goes.

Professor Smith at Tulane believes the ultimate legacy of Macondo may be an exodus of smaller and medium-sized companies from U.S. offshore energy fields, including from the shallow water environment. Drilling will continue, but the world's publicly held supermajors and the large national oil companies expanding abroad may find that they have to contend with less competition in the Gulf and other areas.

And those smaller operators that still want to participate will probably have to find a much larger company to partner with, and on their terms, Smith said.

"All the guys that were sort of the medium-sized companies that were pinning their hopes on developing deepwater capability, or at least developing a deepwater lease or two, are going to have to look to those other companies as partners," he said. "And if you go call Shell up and say, 'Well, I've got this great prospect and it's going to cost me $500 million to drill it and I've got all of the paperwork in shape; my one little problem is I need a $1 billion letter of credit to cover the financial liability,' Shell will say, 'Well, fine, I can put up $1 billion, but I want 75 percent of the lease.'"