BP is closer to restoring its operations and reputation in the US after agreeing a deal with environmental protection authorities that it will enable the oil firm to bid for new drilling rights in the Gulf of Mexico.

The British-based group had started legal proceedings against the US environmental protection agency (EPA) which had banned BP from new contracts on the grounds that it had failed to correct problems properly since the Deepwater Horizon disaster in 2010.

BP said it had now dropped its law suit after resolving outstanding problems with the EPA but the firm will have to abide by monitoring arrangements with the agency for the next five years.

“After a lengthy negotiation, BP is pleased to have reached this resolution, which we believe to be fair and reasonable,” said John Mingé, head of BP America. “Today’s agreement will allow America’s largest energy investor to compete again for federal contracts and leases.”

BP, which claims to have invested almost $50bn (£30bn) in the US over the past five years, is still awaiting a court ruling about whether it was grossly negligent when it caused the biggest sea-borne pollution incident in American history.

The firm is confident it will be judged to have acted responsibly but a gross negligence finding would expose BP to billions of dollars worth of extra fines.

Some environmental groups have expressed opposition to the EPA deal. The Gulf Restoration Network, based in New Orleans, told the New York Times it was outrageous to allow BP to expand its offshore interests given its track record.