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By Jessica Resnick-Ault, Dmitry Zhdannikov and Terry Wade
NEW YORK/LONDON/HOUSTON, July 9 (Reuters) - In early May,with its legal options dwindling and investors impatient, BP Plc saw a chance to negotiate what became a $18.7 billionsettlement that ended five years of litigation over the worstoffshore oil spill in U.S. history.
An unexpected opportunity to secure a global deal that wouldwipe the slate clean of hundreds of claims and untold billionsof dollar in penalties opened up when Chief Executive Bob Dudleymet with Patrick Juneau, the lifelong Louisiana litigator who BPhad panned for handing out "absurd" sums of money as part of aclass settlement in 2012.
The British giant was ready to bury the hatchet after yearsof acrimony over payouts, which had ballooned to more than $10billion. It had bigger problems: unresolved claims by thefederal government, five Gulf of Mexico states and hundreds oflocal municipalities stemming from Macondo well blowout.
Toward the end of an over hour-long conversation about theclaims, Juneau, a mediator by trade, steered it toward thebigger cases BP still faced from the 2010 disaster that killed11 men and gushed oil into the Gulf of Mexico for 87 days.
"I suggested to Mr. Dudley that it seemed to me that I,along with Judge Shushan and Louie Freeh, thought that thosematters can be and should be addressed," he told Reuters.
Sally Shushan, the eastern Louisiana district courtmagistrate, and former Federal Bureau of Investigation directorFreeh, who had been enlisted to investigate Juneau's oil spillclaims program, were already deeply steeped in the issue.
Within weeks, District Court Judge Carl Barbier, who hadoverseen years of acrimonious lawsuits, had designated this trioto shepherd the sides to what would be the largest corporatesettlement in U.S. history, according to people involved.
Within a day, BP signaled its interest in further talks,Juneau said. Its executive board put chief financial officerBrian Gilvary, a mathematics PhD and career BP man, in charge ofthe effort, hoping it would turn out better than in 2012, whenan initial round of settlement talks collapsed.
Dudley returned to meet Juneau, Shushan and Freeh in NewOrleans later in May, bringing the credibility of an Americanwho grew up just a two hour drive away in Hattiesburg,Mississippi.
"That's how you settle: you get the CEO to walk into theroom," said Jim Hood, the attorney general of Mississippi, oneof the five states involved in the settlement.
It took BP nearly two months of 10-hour sessions, oftenthrough the weekend, to reach the provisional agreement signed aweek ago, finally putting a price tag on the spill's civildamages. The deal swelled BP's total bill for Macondo to $53.8billion, yet provided a sense of closure for investors andboosted the share price of the company valued around $120billion by as much as 5 percent. (Graphic:http://graphics.thomsonreuters.com/13/02/US_BPBILL0213.gif)
With a federal confidentiality order still in effect and afinal agreement yet to be signed, much is still unknown aboutthe secret negotiations that headed off what could have beenanother decade of litigation.
But conversations with half a dozen people directly involvedor briefed on the matter show how a series of legal decisionsand deft maneuvering by a trio of insiders paved the way.
"They were losing at every count," said New Orleans attorneyWalter Leger Jr., who represented several local parishes andmunicipalities in the litigation against BP. "I think theyfinally realized that all the forces of the universe suggestedthey'd better talk."
ROAD TO A DEAL
The road toward a settlement was laid by a series of rulingsby Barbier, New Orleans-based Eastern Louisiana District federalcourt judge who has been involved in Macondo-related cases sincea few months after the accident.
In September 2014, he ruled BP was "grossly negligent" inthe disaster and last January set the size of the spill at 3.19million barrels. Taken together, the rulings meant the BP was onthe hook for a fine of up to $13.7 billion under the Clean WaterAct alone. Billions more could be levied from a federal NaturalResource Damage Assessment.
Then, in March, BP took a pivotal step and withdrew a bid toremove Juneau as the administrator overseeing the payouts ofindividual and business damage claims from the uncapped 2012class-action settlement.
Juneau said he med Dudley shortly thereafter to "reset thebutton."
Freeh had set up the meeting. By early May, Barbier hadnamed the "panel of neutrals" to guide the process.
TIME TO MOVE
BP was also under mounting internal pressure to free itselffrom a financial albatross that stymied planning.
Executives feared an unexpectedly large penalty could forcea new round of asset sales, undercutting growth. The companyalso hoped state attorneys would be more flexible on a payoutafter an oil market crash that had halved prices since mid-2014,sliced BP's earnings and threatened jobs in oil states such asTexas and Louisiana.
A BP spokesman in Houston declined to comment.
Weeks of meetings and hundreds of phone calls, with anywherefrom 5 to 50 people at a time, followed. The trio mostly usedconference rooms at two New Orleans hotels, but also Freeh'soffice in Washington, D.C., to hold meetings with everyone fromfederal lawyers to community representatives, Juneau said.
Shushan, a former commercial litigator who has served asU.S. magistrate judge since 1999 and often negotiatedsettlements in complex cases, proved particularly pivotal as shewas seen taking a firm hand when necessary.
"The magistrate started pulling the bull by the horns," saidHood. "That lady worked hours and hours and hours, and ifanybody deserves the credit in this thing, it's Judge SallyShushan."
MILESTONES
While the talks continued under wraps, a series ofmilestones related to Macondo passed by, eliminating some of theuncertainty stemming from the disaster. Barbier held off makinga final ruling on the Clean Water Act penalty, as widelyexpected, while the talks continued in private.
On May 20, BP resolved a chunk of messy litigation bysettling all cross-claims from the spill with well servicescompany Halliburton Co and driller Transocean Ltd.
Then, the deadline for submitting business or individualclaims from the accident closed on June 8.
Finally, just three days before the settlement wasannounced, the Supreme Court dealt BP another blow, dismissingthe company's appeal of Barbier's ruling that the company wasliable under the Clean Water Act. At this point, Barbier couldformally penalize the company at any moment.
On the morning of July 2 BP signed the deal: $5.5 billionfor Clean Water Act violations, less than the maximum; $8.1billion for natural resources damages; $4.9 billion to settleeconomic claims from the Gulf of Mexico states; and up to $1billion reserved for local government claims.
It is not quite over. Local entities, including the LaFourche Parish Veterans district in Louisiana, must stillapprove the agreement by July 15, and it may take months tocomplete the legal paperwork for the federal agreement and get abinding deal approved by the court.
The hard work, however, appears finished. With the ink notyet dry on the deal last week, CFO Gilvary was already headingback to London to begin a holiday.
"It was quite an exhausting marathon," one person said. (Additional reporting By Kathy Finn in New Orleans and LindsayDunsmuir in Washington,; Writing by Terry Wade; Editing byJonathan Leff and Tomasz Janowski)
