The settlement increases the pre-tax cost to BP of the explosion on board the Deepwater Horizon rig by an estimated $10 billion to $53.8 billion, the company said.
The United States welcomed what it said was a record deal and in London BP’s share price rose 4.49 percent to 437.95 pence shortly after the announcement.
“The board has balanced the risks, timing and consequences associated with many years of litigation against its wish for the company to be able to set a clear course for the future,” said BP chairman Carl-Henric Svanberg.
He added: “With this agreement we provide a path to closure for BP and the Gulf.”
The head of the US Justice Department, Attorney General Loretta Lynch, said it would take several months to finalise the deal, including taking public comment.
But she welcomed the package, which follows lengthy battles in the US courts to prove BP’s responsibility for the worst oil spill in the country’s history.
“If approved by the court, this settlement would be the largest settlement with a single entity in American history,” Lynch said in a statement.
“It would help repair the damage done to the Gulf economy, fisheries, wetlands and wildlife, and it would bring lasting benefits to the Gulf region for generations to come.”
The deal has been struck with the US federal government and the Gulf Coast states of Alabama, Florida, Louisiana, Mississippi and Texas, whose economies were badly hit by the disaster.
Eleven people died and millions of barrels of oil were spilled into the Gulf, decimating wildlife and devastating the ecology of a region dependent on the seafood and tourism industries.
“This is a realistic outcome which provides clarity and certainty for all parties,” said BP group Chief Executive Bob Dudley.
“For BP, this agreement will resolve the largest liabilities remaining from the tragic accident and enable BP to focus on safely delivering the energy the world needs.”
BP, which owned 65 percent of the Macondo drilling site being tapped by the Deepwater rig, has been forced to sell off billions of dollars of assets and cut jobs to meet the clean-up bill.
It has also been hard hit in recent months by plunging oil prices, prompting speculation of a possible takeover.
BP chief financial officer Brian Gilvary said the payments would be spread out over many years, averaging at a “manageable” rate of about $1.1 billion a year.
Biraj Borkhataria, an analyst at RBC Capital Markets, said the deal “should finally draw a line in the sand on Macondo for BP, which should result in renewed investor interest in the name”.
The settlement, to be enacted by BP’s US upstream subsidiary, BP Exploration and Production Inc, includes $5.5 billion to be paid to the US over 15 years as a civil penalty under the Clean Water Act.
A further $7.1 billion will be paid to the US and Gulf Coast states over 15 years for natural resource damages, in addition to $1 billion already committed.
BP will also set aside $232 million to cover any further, unforseen damages at the end of the payment period.
Another $4.9 billion will be paid over 18 years to settle economic and other claims made by the five Gulf Coast states.
And up to $1 billion will be paid to resolve claims made by more than 400 local government entities. -AFP