BP agrees to establish $20 billion oil spill compensation fund
BP PLC agreed to establish a $20 billion escrow fund to compensate victims of the Gulf of Mexico oil spill from its well, US President Barack Obama and BP announced separately following a June 16 White House meeting.
OGJ Washington Editor
WASHINGTON, DC, June 16 -- BP PLC agreed to establish a $20 billion escrow fund to compensate victims of the Gulf of Mexico oil spill from its well, US President Barack Obama and BP announced separately following a June 16 White House meeting.
“BP’s liabilities for this spill are significant, and they acknowledge that fact,” Obama said following the meeting. “We will continue to hold BP and all other responsible parties accountable. And I’m absolutely confident BP will be able to meet its obligations to the Gulf Coast and to the American people.”
Obama said BP is “a strong and viable company and it is in all of our interests that it remain so.” BP also voluntarily agreed to establish a $100 million fund to compensate unemployed rig workers idled by his 6-month deepwater drilling moratorium, the president said.
“The agreement announced today will provide greater comfort to the citizens of the Gulf Coast and greater clarity to BP and its shareholders,” said BP Chairman Carl-Henric Svanberg. “We welcome the administration's statements acknowledging that BP is a strong company and that the administration has no interest in undermining the financial stability of BP. This agreement is a very significant step in clarifying and confirming our commitment to meet our obligations.”
BP Chief Executive Officer Tony Hayward said, “From the outset we have said that we fully accepted our obligations as a responsible party. This agreement reaffirms our commitment to do the right thing. The president made it clear and we agree that our top priority is to contain the spill, clean up the oil and mitigate the damage to the Gulf Coast community. We will not rest until the job is done.”
The $20 billion escrow fund will be built over 3½ years, according to BP. It will initially pay $3 billion during this year’s third quarter and $2 billion in the fourth quarter, followed by $1.25 billion quarterly payments until the total reaches $20 billion, it said. “While the fund is building, BP’s commitments will be assured by the setting aside of US assets with a value of $20 billion,” it continued. “The intention is that this level of assets will decline as cash contributions are made to the fund.”
BP said the fund will be available through an independent claims facility administered by Kenneth R. Feinberg, a founder and managing partner of Feinberg Rozen LLP, which is a law firm specializing in dispute resolution, to satisfy legitimate claims including natural resource damages and state and local response costs. Fines and penalties will be excluded from the fund and paid separately. Payments from the fund will be made as they are adjudicated, whether by the ICF, by a court, or as agreed by BP, the company said.
“This $20 billion will provide substantial assurance that the claims people and businesses have will be honored,” said Obama. “It’s also important to emphasize this is not a cap. The people of the gulf have my commitment that BP will meet its obligations to them. BP has publicly pledged to make good on the claims that it owes to the people in the gulf, and so the agreement we reached sets up a financial and legal framework to do it.”
BP said further and more-detailed terms regarding the establishment and operation of the claims fund and the ICF will be finalized and announced as soon as possible. Any money left in the fund once all legitimate claims have been resolved and paid will revert to BP, it added.
The agreement forced the company’s board to cancel its previously announced first-quarter dividend payment, and suspend payouts for the second and third quarters. “We regret the cancellation and suspension of the dividends, but we concluded it was in the best interests of the company and its shareholders,” Svanberg said.
BP said its businesses continue to perform well, with cash flows from operations expected to exceed $30 billion in 2010 at current prices and margins before taking into consideration costs related to the Deepwater Horizon spill. The company also has more than $10 billion of committed banking facilities, and its board has ordered “a significant reduction in organic capital spending” and an increase in planned asset sales to about $10 billion over the next 12 months, it said.
Obama said as he spoke with Svanberg, he emphasized that Gulf Coast residents still are recovering from Hurricanes Rita and Katrina and don’t have financial cushions to withstand financial impacts from the spill or the drilling moratorium. He said that he urged BP’s chairman to remind shareholders of this, and that Svanberg said that he would.
“That’s going to be the standard by which I measure BP’s responsiveness,” the president said. “I think today was a good start, and it should provide some assurance to some of the small business owners and individuals down in the gulf who I was visiting with that BP is going to meet its responsibilities.”
Under the ICF, standards for recoverable claims will be published, and a panel of three judges will be available to hear appeals of the administrator’s decisions, according to the White House. The facility is designed to handle businesses and individuals’ claims; BP will continue to directly handle local, state, tribal, and federal government claims, it said.
Claims will be decided as expeditiously as possible “and in any case within the existing statutory time frame,” it continued. Dissatisfied claimants will retain all current legal rights, including the right to go to court or to the Oil Spill Liability Fund. Decisions under current law by the ICF will be binding on BP, and all adjudicated claims will have access to the escrow fund.
Specific terms of BP’s agreement to compensate unemployed rig workers call for the company to contribute $100 million to a foundation for this purpose, the White House said. It noted that the administration’s May legislative proposal called for establishment of a new unemployment assistance program modeled after the Disaster Unemployment Assistance Program to assist workers who have lost their jobs as a result of a spill of national significance.
The White House also noted that BP has already committed $500 million to the 10-year Gulf of Mexico initiative to improve understanding and mitigate impacts of oil and gas pollution. “As part of this initiative, BP will work with governors and state and local environmental and health authorities,” it said.
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