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President Barack Obama and Vice President Joe Biden meet with BP executives in the Roosevelt Room of the White House, June 16, 2010, to discuss the BP oil spill in the Gulf of Mexico. Pictured, from left, are BP CEO Tony Hayward, BP Chairman Carl-Henric Svanberg, BP General Counsel Rupert Bondy, BP Managing Director Robert Dudley, Senior Advisor Valerie Jarrett, Labor Secretary Hilda Solis, Attorney General Eric Holder, and Homeland Security Secretary Janet Napolitano.
BP said on Wednesday it would suspend
dividends this year and set aside $20bn
to cover claims relating to the Gulf of
Mexico oil spill, after discussions with
President Barack Obama.
The UK oil group also agreed to
establish a $100m fund to compensate oil
sector workers laid off as a result of
the spill, Obama said following talks
with BP executives led by Carl-Henric
Svanberg, the chairman and the chief
executive, Tony Hayward.
“This $20bn will provide substantial
assurance that the claims people and
businesses have will be honoured,”
Obama said after the meeting, which
lasted for four hours, although the
president left most of the negotiations
to his aides. “It’s also important to
emphasise this is not a cap. The people
of the Gulf have my commitment that BP
will meet its obligations to them.”
The spill continues and according to the New York
Times, predictions by analysts of the overall cost of the spill to BP, when
criminal penalties are included, have been rising. On Wednesday, Pavel Molchanov,
an analyst at legal firm Raymond James, estimated the total legal cost, including criminal
fines, at $62.9bn, which would dwarf the $20 billion escrow account to be
used to pay claims of economic loss.
BP said in a statement: Following a meeting with the President of the United
States, the BP Board announces an agreed package of
measures to meet its obligations as a responsible party
arising from the Deepwater Horizon spill.
Agreement was reached to create a $20bn claims fund over
the next three and a half years on the following basis:
BP will initially make payments of $3bn in Q3 of
2010 and $2bn in Q4 of 2010. These will be followed
by a payment of $1.25bn per quarter until a total of
$20bn has been paid in.
While the fund is building, BP's commitments
will be assured by the setting aside of U.S. assets
with a value of $20bn. The intention is that this
level of assets will decline as cash contributions
are made to the fund.
The fund will be available 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 Independent Claims
Facility (ICF) referred to below, or by a court, or
as agreed by BP.
The ICF will be administered by Ken Feinberg.
The ICF will adjudicate on all Oil Pollution Act and
tort claims excluding all federal and state claims.
Any money left in the fund once all legitimate
claims have been resolved and paid will revert to
BP.
The fund does not represent a cap on
BP liabilities, but will be available to satisfy
legitimate claims. 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.
As a consequence of this agreement, the BP Board has
reviewed its dividend policy. Notwithstanding BP's
strong financial and asset position, the current
circumstances require the Board to be prudent and it has
therefore decided to cancel the previously declared
first quarter dividend scheduled for payment on 21st
June, and that no interim dividends will be declared in
respect of the second and third quarters of 2010.
Discussing President Obama
meeting with BP executives, with Fadel Gheit, Oppenheimer & Co.; Charles
Maxwell, Weeden & Co. and CNBC's Bertha Coombs:
