Under intense pressure from United States President Barack Obama, BP said on Wednesday it will set up a $20-billion fund for damage claims from its huge Gulf of Mexico oil spill, sell assets and suspend dividend payments to shareholders.
The deal gave Obama his most tangible success since the crisis began 58 days ago, with criticism over his handling of the worst oil spill in US history hurting the president in opinion polls as his fellow Democrats gear up for tough congressional elections in November.
The fund, which BP will finance partly by selling $10-billion in assets, also eased pressure on the British energy giant, whose share price has withered amid uncertainty over the ultimate cost of clean-up, claims and fines.
Obama announced the agreement after White House officials held four hours of talks with BP executives, who emerged to offer an apology to the American people.
“I do thank you for the patience that you have during this difficult time,” BP chairperson Carl-Henric Svanberg said. “I hear comments sometimes that large oil companies are greedy companies who don’t care. But that is not the case in BP. We care about the small people.”
Svanberg’s “small people” comment was the latest in a string of gaffes by BP officials over the spill. After the remark was widely covered on US newscasts, the Swedish chairperson issued a statement saying he “spoke clumsily”.
Chief executive Tony Hayward, the public face of BP’s response to the disaster and author of a few gaffes himself, will appear on Thursday at a congressional hearing where he will face heavy scrutiny over events leading up to the spill and BP’s clean-up of the mess.
An April 20 explosion on an offshore rig leased by BP killed 11 workers and ruptured a deep-sea well. The ensuing spill has fouled 190km of US coastline, imperilled multibillion-dollar fishing and tourism industries, and killed birds, sea turtles and dolphins.
‘They’ll need more’
While Obama stressed the agreement would not cap BP’s total liabilities, Wall Street appeared to cheer the small dose of clarity the deal provided, driving up the company’s share price by 1,5% in New York.
Under the agreement, BP committed to pay $20-billion into an independently managed fund over four years, suspend dividend payments for the rest of the year and pay $100-million to workers idled by the six-month moratorium on deep-sea drilling that the Obama administration imposed after the spill.
The $20-billion figure is roughly equal to BP’s average annual profits over the past four years. BP is expected to report net profits of $18,9-billion in 2010, according to Thomson Reuters I/B/E/S consensus estimates.
“We will continue to hold BP and all other responsible parties accountable,” Obama said at the White House. “And I’m absolutely confident BP will be able to meet its obligations to the Gulf Coast and to the American people.”
The fund will be administered by Kenneth Feinberg, the Obama administration official who oversaw compensation for executives at companies that received federal bailout funds.
Obama had pressed BP to set up a fund administered by a third party after hearing first-hand complaints from Gulf Coast residents that BP’s claims process was too complicated and the company was paying out too little.
With thousands of Gulf Coast commercial fishermen largely idled by the spill, Louisiana shrimper Clifton Bartholomew (21) wondered whether $20-billion would be enough.
“If you add it all up together — everybody in shrimping, fishing, the whole industry — by the time this is all gone I think they’ll need more than $20-billion,” Bartholomew said.
BP said in a statement it would cut three quarters of dividends, significantly reduce its investment programme and sell $10-billion of assets to create the fund.
The commitments are harsher penalties than most investors had hoped for. They had not expected BP to be forced to sell assets and cut investment — moves that would curb its growth.
BP said it would cancel the first-quarter dividend due for payment on June 21 and would not declare interim dividends for the second and third quarters of 2010. The payouts were expected to be about $2,6-billion per quarter, in line with recent quarters.
‘Strong and viable company’
Obama stressed BP was “a strong and viable company, and it is in all of our interests that it remain so.”
BP’s shares gyrated in volatile New York trading, dropping as much as 5% before swinging to positive territory on news of the fund, known as an escrow account.
“It’s a step in the right direction for BP, but unfortunately I cannot say the same for Tony Hayward because it is going to get tougher for him,” said Fadel Gheit, managing director of oil and gas research at investment firm Oppenheimer & Co in New York
“Tomorrow [Thursday] he’s going to be in the hot seat under glaring lights and tremendous animosity and criticism” at the hearing.
The BP chief executive will tell lawmakers the entire oil and natural gas industry needs to be better prepared for deepwater accidents, according to his prepared testimony.
That is an apparent response to attempts by rival oil companies to distance themselves from BP’s disaster at a hearing on Tuesday.
Back in the Gulf, BP said it started a second system to siphon oil from the leak on Wednesday, a day after a team of US scientists raised their high-end estimate of the amount of crude oil flowing from the well by 50% to between 35 000 and 60 000 barrels per day.
The new containment cap system is intended to raise collection capacity to 28 000 barrels (1,18-million gallons/4,45-million litres) a day from about 15 000 barrels (630 000 gallons/2,38-million litres) a day now. BP is drilling relief wells that it hopes will halt the spill in August. — Reuters