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BP says it's sorry — and guarantees $20B for claims fund

WASHINGTON — President Barack Obama wrested a $20 billion compensation guarantee and an apology to the nation from British oil giant BP on Wednesday, announcing the company would set up a major claims fund for shrimpers, restaurateurs and others whose lives and livelihoods are being wrecked by the oil flooding into the Gulf of Mexico.

Obama had said he would "make BP pay," and the company's chairman said after four hours of intense White House negotiations that BP was ready.

Huge as the $20 billion seems, both Obama and London-based BP PLC said it was by no means a cap.

The deal also adhered to what Obama had said was his non-negotiable demand: that the fund and the claims process be administered independently from BP. It won't be a government fund, either, but will be led by the administration's "pay czar," Kenneth Feinberg, an administrator with a proven track record.

"What this is about is accountability," said Obama in brief remarks in the State Dining Room after a four-hour, on-again, off-again White House negotiation session with BP executives. "For the small-business owners, for the fishermen, for the shrimpers, this is not just a matter of dollars and cents. . . . A lot of these folks don't have a cushion."

On the driveway outside, BP chairman Carl-Henric Svanberg apologized for "this tragic accident that should never have happened."

"We care about the small people," he said.

As of the end of March, BP reported only $6.8 billion in cash and cash equivalents, and company chief financial officer Byron Grote said the amount has not changed "materially" since then. The company would presumably have to borrow money for the fund, presenting a potential problem because rising investor concerns could raise the company's borrowing costs.

Svanberg announced that the company would not pay dividends to shareholders for the rest of the year (Story, 8B). The company will make initial payments into the escrow fund of $3 billion this summer and $2 billion in the fall, followed by $1.25 billion per quarter until the $20 billion figure is reached.

Aware that a healthy BP is in everyone's interest, Obama gave a plug for what he called "a strong and viable company" — a day after he had accused it of recklessness.

The company's potential liabilities, including cleanup costs, victims' compensation and civil fines, are breathtaking to consider — stretching far beyond the $20 billion fund.

For example, civil penalties can be levied under a variety of environmental protection laws, including fines of up to $1,100 for each barrel of oil spilled. That alone could translate to as much as $3 billion. If BP were found to have committed gross negligence or willful misconduct, the civil fine could be up to $4,300 per barrel, approaching $12 billion.

Including claims already paid out, the total the company has spent on the spill has now risen to $1.75 billion, BP's Grote said.

So far, 66,000 claims have been filed, $81 million awarded and 26,000 checks cut, said Coast Guard Adm. Thad Allen.

The $20 billion escrow fund can be used to pay all claims, including environmental damages and state and local response costs, with the exception of fines and penalties.

Resolving one particularly thorny dispute between BP and the government, the company also agreed to establish a separate $100 million fund to support oil rig workers idled by Obama's post-spill six-month moratorium on new deep-sea oil drilling. The administration also was to ask Congress for special unemployment insurance for the workers.

BP has taken the brunt of criticism about the oil spill because it was leasing and operating the Deepwater Horizon rig that sunk on April 20. It also is a majority owner of the undersea well.

But several other companies involved in the failed oil well may also be required to chip in. Swiss-based Transocean Ltd. owned a majority interest in the rig. Anadarko Petroleum, based in The Woodlands, Texas, has a 25 percent non-operating interest in the well.

fast facts

Overseeing the account

President Barack Obama has tapped Kenneth Feinberg, 64, to be the independent administrator of the oil spill escrow fund.

• As "pay czar," he sets compensation limits for executives at banks and other companies getting the most aid from the $700 million Wall Street bailout. He is serving without pay.

• He ran the government compensation program for the Sept. 11 terror attacks for nearly three years, deciding how much families should get based largely on how much the victims would have earned in a lifetime.

• In 1984, he helped settle a dispute between Vietnam War veterans and chemical companies that produced the herbicide known as Agent Orange.

Sources: Associated Press; Washington Post

BP says it's sorry — and guarantees $20B for claims fund 06/16/10 [Last modified: Wednesday, June 16, 2010 9:29pm]
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