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BP Plc (BP - Analyst Report) has inked an agreement with Cameron International Corporation (CAM - Analyst Report) to settle all mutual claims related to the Deepwater Horizon accident and spill. Cameron, the designer and manufacturer of the blowout preventer (BOP) used on the Deepwater Horizon, has agreed to pay BP $250 million.

The amount – to be paid by January 13 next year – will directly be placed in a $20 billion trust, which BP had formed for payments of claims related to the oil spill as well as damages to natural resources. In the meantime, BP agreed to indemnify Cameron for compensatory claims arising from the spill, including claims relating to pollution stemming from the accident or any damage to natural resources.

BP and Cameron have also decided to withdraw claims against each other in the Multi-District Litigation pending in New Orleans. However, BP’s indemnity rules out civil, criminal or administrative fines and penalties, claims for punitive damages, and certain other claims.

BP considers the settlement to be in the best interest of both companies. The British oil major also added that the agreement is not an admission of liability by either party.

A new report into the causes of the spill found the design and maintenance of the BOP on the Deepwater Horizon unsuitable. The report held that the BOP was not properly designed or tested for the conditions that existed at the time efforts were made to recapture well control.

BP has already reached settlements with its partners in the Macondo well, Mitsui and Anadarko Petroleum Corporation (APC - Analyst Report), as well as Weatherford International Ltd. (WFT - Analyst Report), the manufacturer of the float collar used at the well.

Earlier this week, Transocean Ltd. (RIG - Analyst Report), owner of the giant Deepwater Horizon platform which was leased by BP, held that it is not liable to pay any federal fines or penalties for oil spilled below the surface in the Gulf of Mexico because of an indemnity provision in its drilling contract with BP.

Countering Transocean’s conduct, BP stated that the agreement does not cover liabilities that result from willful misconduct. Transocean on the other hand, is denying any willful misconduct during the drilling of the Macondo well.

BP holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. For the long term, we maintain a Neutral rating on the stock.

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