BP pledges certain gulf assets as spill collateral

Paula Dittrick
OGJ Senior Staff Writer

HOUSTON, Oct. 1 -- BP PLC pledged certain Gulf of Mexico assets as collateral for the $20 billion Deepwater Horizon Oil Spill Trust, which was established to pay claims arising from the Apr. 20 Macondo well blowout, explosion on Transocean Ltd.’s Deepwater Horizon semisubmersible, and an oil spill.

The cost of the oil spill as of Sept. 29 amounted to $11.2 billion, including the cost of the spill response, containment, relief well drilling, static kill and cementing, grants to the gulf states, claims paid, and federal costs. BP operated the Macondo well.

The pledged collateral consists of an overriding royalty interest in oil and gas production of BP's Thunder Horse, Atlantis, Mad Dog, Great White, Mars, Ursa, and Na Kika oil and gas assets in the Gulf of Mexico.

“The pledging of these assets underscores our commitments to the trust,” said Lamar McKay, BP America Inc. chairman and president. An estimated 4.9 million bbl of oil leaked from the Macondo well, of which BP estimates it captured 800,000 bbl. Eleven workers on the Deepwater Horizon semi were killed.

Since government officials confirmed the Macondo well was sealed on Sept. 19, BP has been plugging and abandoning the well. This includes removing portions of the casing and setting cement plugs. It also has started dismantling and recovering containment equipment and decontaminating the vessels involved in the oil spill response.

BP created a wholly owned company, Verano Collateral Holdings LLC, to hold the overriding royalty interest in gulf production. This royalty interest is capped at $1.25 billion/quarter and $17 billion total. Verano will pledge the overriding royalty interest to the trust as collateral for BP's remaining contribution obligations to the trust.

There will be no change in operatorship or the marketing of the production from the assets, and there will be no effect on the other partners’ interest in the assets. For financial reporting purposes, Verano will be a consolidated entity of BP.

BP agreed on June 16 to establish the trust and set aside assets. The company already contributed $3 billion to the trust and will make additional contributions of $2 billion in the fourth quarter of 2010 and $1.25 billion quarterly thereafter through yearend 2013.

Contact Paula Dittrick at paulad@ogjonline.com.

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