BP agrees to $20 billion fund for gulf oil spill claims
Thursday, June 17, 2010
The much-anticipated showdown Wednesday at the White House between President Obama and top BP executives turned into no-nonsense business meeting in which the oil giant agreed to pay $20 billion into an escrow account to cover claims associated with the oil spill disaster in the Gulf of Mexico.
There were also apologies from BP's chairman of the board, Carl-Henric Svanberg -- to the president in the Roosevelt Room, and then to the American people when Svanberg and his grim-faced fellow executives went before the cameras in the White House driveway.
Both sides got what they wanted out of the encounter. The administration, under fire for how it has responded to the environmental calamity, can boast of creating a huge pot of money for easing the pain of Gulf Coast residents. BP, though poorer on paper in the short run, got some much-needed clarity on its long-term liability, plus an explicit statement from Obama that the administration doesn't want to see BP driven into bankruptcy.
"BP is a strong and viable company, and it is in all our interests that it remain so," Obama said in remarks to reporters in the State Dining Room. "This is about accountability. At the end of the day, that's what every American wants and expects."
The morning meeting, which ran several hours longer than expected, was Obama's first face-to-face encounter with BP executives since the Deepwater Horizon rig exploded in a fireball April 20. Although their partnership of necessity has been strained by the continuing spill, which, according to recent estimates, has dumped upward of 85 million gallons of oil into the gulf, the administration and BP officials hammered out the key details of their agreement over several days prior to the White House session.
Under the deal, BP will pay $5 billion annually over the next four years into an escrow account for damage claims from the gulf, setting aside an equivalent amount of U.S. assets as collateral until the fund reaches $20 billion. The figure is not a cap on the potential damages, and the company received no liability waiver as part of the agreement.
The thorniest issue in recent days, however, appears to have been resolved with a compromise. Since last week, administration officials have said that BP should pay the lost wages of oil industry workers sidelined by the administration's six-month moratorium on deep-water drilling. That stance put BP's stock price in a nose dive, and BP officials made clear that such claims would be beyond the pale.
Instead, the president Wednesday asked BP for a voluntary contribution to a foundation that will support unemployed oil industry employees. BP agreed, offering $100 million.
"We made clear that we do not think this is a liability for the company. The president said he's concerned about those workers. He asked if there was something we could do as a voluntary gesture," said Jamie Gorelick, a Washington lawyer who serves as an adviser to BP and sat in on the White House meeting.
Asked if BP had requested a statement from Obama affirming that BP should remain strong and viable, Gorelick did not answer directly, saying: "We know what it looks like when a company is driven into bankruptcy. The claims that come first are the creditors, then the employees, then the environmental claims, and then the likes of shrimpers. This would not be a good result for anyone. . . . I don't think the administration needs persuasion of this."
'Words are not enough'
Obama participated at various times in the discussions, which senior administration officials described as a "negotiation," and met alone afterward with Svanberg. Attorney General Eric H. Holder Jr. also participated in much of the session, a sign of the potential criminal liability the oil company may face.
"We have made it clear to the president that words are not enough. We understand that we will and we should be judged by our actions," Svanberg said when he faced the cameras after the meeting. He added, "I would like to take this opportunity to apologize to the American people on behalf of all the employees of BP, many of whom are living on the Gulf Coast."
He said BP for the rest of this year will not pay dividends to shareholders.
The new fund will be administered by Kenneth Feinberg, the Washington lawyer who oversaw a similar fund for victims of the Sept. 11, 2001, terror attacks and who more recently was the Obama administration's special master for executive compensation at firms receiving federal bailout money. Coast Guard Adm. Thad W. Allen, who is managing the federal response to the spill, said Wednesday that BP has already paid $81 million in claims, exceeding the $75 million cap on damages established by federal law two decades ago after the Exxon Valdez disaster.
"The president's goal, as he said in the meeting, is to make sure there are adequate funds to help the people of the gulf get back on their feet," said Rahm Emanuel, the White House chief of staff, who attended the meeting. "Those are his shareholders, and that's who he's trying to protect."
A new technique
As the two sides were meeting in Washington, BP announced that it had begun using a second containment system to capture oil leaking from the well, which according to the latest scientific estimate is gushing between 35,000 and 60,000 barrels a day (1.5 million to 2.5 million gallons).
The new technique pulls oil and gas from the blowout preventer and up to a surface rig called the Q4000, using one of the lines that had been employed to pump heavy drilling mud into the well during the ill-fated "top kill" attempt last month. BP did not reveal the quantities involved. At best, the new process can handle 10,000 barrels a day, the company has said.
BP's controversial chief executive, Tony Hayward, made no public statement after meeting with Obama, but he will testify Thursday before a House subcommittee. In prepared remarks released in advance, Hayward says he is "deeply sorry" and adds, "I fully grasp the terrible reality of the situation."
Congress received from the White House on Wednesday a $15 million request to fund the commission Obama has appointed to study the future of offshore drilling. Its work is supposed to conclude in six months.
Wednesday's Obama-BP meeting came a day after the president's fourth visit to the gulf, a two-day trip that took him to Mississippi, Alabama and the Florida Panhandle. His experience seemed fresh in his mind. He said he told Svanberg in their private meeting that "for the families I met with down in the gulf, 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," he said. "They were coming off Rita and Katrina, coming off the worst economy that this country has seen since the Great Depression, and this season was going to be the season where they were going to be bouncing back."
Svanberg, a Swede who is not a native English speaker, said afterward of Obama: "He cares about the small people. And we care about the small people." Later he issued a statement apologizing for speaking "clumsily."