BP agrees to $20 billion oil spill fund
WASHINGTON – Agence France-Presse | 6/17/2010 12:00:00 AM |
An 'unprecedented' string of failures triggered the Gulf of Mexico oil spill, BP's chief executive will argue Thursday, a day after his firm pledged at least $20 billion in compensation.
An "unprecedented" string of failures triggered the Gulf of Mexico oil spill, BP's chief executive will argue Thursday, a day after his firm pledged at least $20 billion in compensation.
Tony Hayward was expected to testify before angry U.S. lawmakers Thursday, a day after he and BP Chairman Carl-Henric Svanberg were summoned to the White House for talks with President Barack Obama.
In addition to agreeing to fund a $20 billion compensation account, the British firm said it would pay no more shareholder dividends this year, as it tries to meet the bill from the disaster.
Flanked by somber-looking BP executives, Svanberg pledged that compensation claims would be handled "swiftly and fairly." "We have made clear from the first moment of this tragedy that we will live up to all our legitimate responsibilities," he said. "We will look after the people affected, and we will repair the damage to this region, the environmental damage to this region and to the economy."
In a surprise move, he announced a $100 million foundation to help unemployed rig workers. But his charm offensive backfired when his statement that BP cares about the "small people" was received as condescension, forcing him to issue an apology for having spoken "clumsily."
The compensation fund will be run by prominent lawyer Kenneth Feinberg, who managed compensation claims by victims of the September 11, 2001, terror attacks, and will be overseen by a panel of three judges who can hear appeals. "BP has agreed to contribute $20 billion over a four-year period at a rate of $5 billion per year, including $5 billion within 2010," a White House statement said. "This account is neither a floor nor a ceiling on liability," the statement said, adding BP would not seek to take advantage of the $75 million federal liability cap for oil companies.
The announcement represented a major victory for Obama, who has come under fire over his handling of a disaster that has raised questions about his leadership and threatened to damage his presidency. It was also welcome news for the thousands whose livelihoods are threatened by the spill.
"It is probably the best news I've gotten since this thing started. It gives us some security for the future," said Brent Roy, whose fishing charter business in Venice, Louisiana, has been shut down for a month.
For BP, the pledge comes amid speculation about the firm's financial health. Obama sought to reassure investors, saying he was "absolutely confident BP will be able to meet its obligation to the Gulf Coast and to the American people." "BP is a strong and viable company and it is in all of our interests that it remain so," he said.
But the scale of the company's difficulties was hinted at Wednesday when chief financial officer Byron Grote announced that it planned to offload $10 billion of assets. Analysts said BP, which has already spent some $1.6 billion battling the spill and made a profit of around $14 billion in 2009, should be strong enough to weather the storm even if it has to borrow more.
"Regardless how the payments mechanically happen, BP has the financial strength to fund it," said Jason Gammel of Macquarie Research. "They have enough cash flow and quality assets that will allow it to fund that type of liability."
British finance minister George Osborne told the BBC on Thursday that BP was a "very strong company" and has the resources to cover the costs of the Gulf of Mexico oil spill. The firm's final liability will be tied to the amount of oil still spewing into the ocean each day, with U.S. experts now putting that figure at between 35,000 and 60,000 barrels.
BP is containing an average of 15,000 barrels a day of oil, which is being siphoned up to two processing ships on the surface. It hopes to increase that amount significantly in the coming weeks. But the leak is not expected to be permanently capped until August, when one of two relief wells being drilled is complete.