BP’s announcement that it will pay
$7.8 billion to compensate thousands of Gulf Coast residents harmed
in the Deepwater Horizon disaster ends one chapter of legal wrangling
over the 2010 oil spill, but leaves other, potentially far more
expensive, issues unresolved.

The tentative deal, announced late
Friday, does not address state lawsuits and federal claims under the
Clean Water Act and Oil Pollution Act, which could cost BP as much as
$21 billion more. It has little to do with efforts to assess the
extent of environmental damage and to pay for them; that will come
later. And BP could still face criminal charges related to the oil
spill and be barred from receiving federal contracts.

The payout agreed to Friday is BP’s
best estimate of what it will cost to meet outstanding claims, but is
not capped and could wind up being higher. As of now, though, the
amount is significantly less than many had expected and does not
appear to require BP to spend any money that it had not already
agreed to pay. The settlement will come out of a $20 billion fund set
aside in June 2010 by BP at the behest of President Obama to cover
claims from disaster victims. The settlement amounts to less than
one-third of BP’s 2011 profits, which were nearly $26 billion.

BP officials portrayed the settlement
as one of a number of programs the company has undertaken to repay
Gulf Coast residents, while assuring investors that the company has
anticipated liabilities from the explosion and sinking of the
Deepwater Horizon oil rig. Eleven men died in the accident and more
than 200 million gallons of oil spilled into the Gulf.

“From the beginning, BP stepped up
to meet our obligations to the communities in the Gulf Coast region,
and we’ve worked hard to deliver on that commitment for nearly two
years,” said Bob Dudley, BP’s CEO, in a statement issued Friday
night. “The proposed settlement represents significant progress
toward resolving issues from the Deepwater Horizon accident and
contributing further to economic and environmental restoration
efforts along the Gulf Coast.”

Others are already questioning whether
the settlement terms are fair, however.

The lawsuits were filed mostly by
people who sought greater damages than were likely to be met by the
Gulf Coast Claims Facility, the BP fund that has compensated
residents for economic losses since mid-2010. But because the
settlement will be paid out of the same fund, and amounts to a little
more than half of what remains in it, it’s not yet clear how much
plaintiffs will receive or what will happen to other claimants if the
fund runs dry.

A portion of the settlement also will
go to lawyers involved in the case, whereas previously money in the
BP fund had gone only to claimants.

“How does that advance the ball at
all?” asked Anthony Buzbee, a Houston attorney representing 12,000
plaintiffs against BP, but who was not on the committee that
negotiated the settlement. “The lawyers on that committee wanted to
settle because it means huge fees.”

Even with Friday’s settlement, BP has
several significant legal and financial hurdles left to cross.

Nearly two years after the disaster,
perceptions are still shifting about how much damage it has done. As
oil washed ashore on hundreds of miles of coastline and the Gulf’s
tourism and fishing industries faltered, President Obama called the
spill “the worst environmental disaster America has ever faced.”
Since then, some experts have said the oil dissipated faster than
expected and the long-term harm was less than predicted.

Yet even now, tar balls are still
turning up on beaches, residents complain of health problems due to
the spill or chemical dispersants used to clean it up, and an
increasing number of dolphin deaths have raised biologists’
concerns.

Environmental scientists say it will be
years before the true extent of the disaster can be known, making the
next round of litigation for BP even more complicated.

Friday’s settlement effectively split
off individual claims from the thornier issues of assessing and
paying for long-term environmental damage. Those questions will begin
to be addressed in the civil suits brought by several states and the
U.S. government under the Clean Water Act and Oil Pollution Act
alleging BP acted negligently.

After the spill, several government
investigations found that BP and its contractors made careless
missteps in the final hours of drilling its complex oil well in
mile-deep water.

The Department of Justice also is
conducting a criminal investigation into the Gulf spill and may bring charges under the Clean Water Act. Officials have said that
they are weighing whether to prosecute individual BP executives for
decisions made in the days leading up to the deadly explosion, as
well as charges against the corporation itself.

The actions triggered by the Gulf spill
capped more than a decade of accidents and criminal and civil cases
brought against BP, following several oil spills in Alaska, the
deadly explosion of the company’s refinery in Texas City, and a
scandal in which BP was accused of manipulating propane prices.

BP’s track record may make it
vulnerable to the ultimate civil sanction: a decision by the
Environmental Protection Agency to disqualify the company from future
federal contracts including leases to drill, a penalty called
debarment.

BP’s facilities in Prudhoe Bay, where
the company spilled 200,000 gallons of oil in 2006, as well as the
company’s aging Texas City refinery, where an explosion killed 15
workers in 2005, already have been debarred. At issue now is
whether the federal government will cancel contract eligibility for
the entire company, penalizing it for a pattern of wrongdoing and
exhibiting a “culture of corporate non-compliance.”

The case partially settled Friday
consolidated thousands of individual, state and federal lawsuits
brought against the company into one mammoth case that was to be
tried in U.S. District Court in New Orleans. Judge Carl Barbier –
who delayed the trial’s Feb. 27 start so that a settlement could be
reached — had planned for the case to unfold in three stages: the
first to establish BP’s liability and whether the company was
negligent, factors that would have dictated the severity of damages
under the Clean Water Act and the Oil Pollution Act; and later stages
assessing mistakes made in drilling operations and the spill’s
environmental toll on Gulf ecosystems. At one point, BP said a trial
could go on for more than a year.

The federal suits that remain
unresolved may turn out to be the most expensive. They depend largely
on whether BP is found to have been grossly negligent in its handling
of the Deepwater Horizon disaster, and on how much oil is determined
to have seeped into the Gulf. Federal law allows for the company to
be fined $1,100 per barrel under normal circumstances, and as much as
$4,300 per barrel if it was grossly negligent. Under the current
estimate, 4.9 million barrels of oil spilled, BP could face up to $21
billion in additional fines.

The exact amount of oil spilled
continues to be a matter of debate, however. The Coast Guard
initially estimated that the amount of oil flowing into the Gulf was
about 42,000 gallons a day. Eventually, the government concluded the
number was much higher — 2.4 million gallons a day, or 206 million
gallons total — but BP disputed those figures.

In January, e-mails released as part of
the court proceedings showed that in the first days of the spill,
BP’s own estimates of the potential flow rate were higher still –
up to 3.4 million gallons a day, according to a report by the
Associated Press. BP endeavored to keep its estimates secret,
telling its staff “not to communicate to anyone on this.”

BP has said that it has set aside a
total of $37.2 billion to pay for damages related to the spill. Of
that, the company estimates it has already spent $22 billion on Gulf
coast cleanup and restoration, including at least $6.1 billion
through the claims facility. The latest $7.8 billion settlement
includes $2.3 billion slated to help resolve issues related to the
Gulf seafood industry, and appears to bring the company within about
$7 billion of its stated budget, a figure that could be eclipsed as
the remaining components of the lawsuits go forward.

The deal is divided into a fund for
economic claims, and one for health-related issues, which covers
plaintiffs’ current medical conditions and also provides funds for
a 21-year program to address future health care claims and issues as
they arise. It provides $105 million to support health care in Gulf
communities that is payable immediately, even though the settlement
overall is still subject to review and approval.

Abrahm Lustgarten is the author of
“Run
to Failure: BP and the Making of the Deepwater Horizon Disaster,”
which will be published on March 26.