US lifts ban blocking BP from fresh federal contracts over Gulf spill

The U.S. government has lifted a ban on BP being eligible for new federal contracts, in a move that follows a lawsuit from the British oil company claiming it was being unfairly penalized over the 2010 Gulf of Mexico spill.

The spill was the largest offshore oil slick in U.S. history, causing harm to local wildlife and hitting many Gulf states' economies. It led to a prohibition two years later on bids from BP for fresh federal contracts.

The decision to end that ban comes just before the Department of Interior will offer more than 40 million acres for oil and gas exploration and development in the Gulf of Mexico in March lease sales.

BP agreed Thursday to drop a lawsuit against the Environmental Protection Agency (EPA) — which issued the original ban — challenging the suspension.

The EPA said it had reached an agreement with BP and had ended the prohibition on bidding for federal contracts on everything from fuel supply contracts to offshore leases.

While the EPA cited BP as lacking “business integrity” after the spill, the government agency now says the company has committed to a set of safety, ethical and corporate governance requirements.

"It's time to let them out from the doghouse. Let's let them get back to work," said Mike Breard, energy company analyst with Hodges Capital Management in Dallas.

Shares of BP traded in the United States rose about 1 percent to $48.09 after the close of regular trading on the New York Stock Exchange, a sign investors were hopeful the company could try to grow its U.S. offshore operations.

But some environmentalists questioned the lifting of the ban, noting that almost four years after the spill the cleanup has not been completed. The New York Times reported Thursday that oil still washes up on shore in some areas of the Gulf, especially during storms.

And the effects of a controversial oil dispersant, called corexit, continues to destroy Gulf marine life, according to scientists.

Tyson Slocum, director of Public Citizen's Energy Program, criticized the move for letting BP "off the hook.” The company "has failed to prove that it is a responsible contractor deserving of lucrative taxpayer deals," he said.

The government hit BP with the suspension in November 2012 after the Deepwater Horizon oil rig explosion killed 11 workers and gushed millions of barrels of oil into coastal waters.

The ban only affected new contracts, not existing deals, and BP filed last August to overturn it. BP is one of the largest suppliers of fuel to the U.S. government, including to the military, holding contracts worth more than $1.34 billion. It is also a significant holder of leases in the Gulf of Mexico, which has seen a surge in new crude production following the Macondo oil well blowout.

The last lease sale BP participated in was in June 2012, when they acquired deepwater leases. They also bought 11 leases in the December 2011 sale, the first post-Macondo auction.

Despite the settlement with the EPA, BP is still paying out millions of dollars to settle damage claims from Gulf residents in a contentious process that BP has said is being mismanaged by the administrator, Louisiana lawyer Patrick Juneau.

BP has provisioned about $42 billion in charges related to the spill.

Al Jazeera and wire services