BP agrees to $20 bln spill fund, cuts dividend

WASHINGTON, (Reuters) – Under intense pressure from  President Barack Obama, BP Plc agreed yesterday to set up a  $20 billion fund for damage claims from its huge Gulf of Mexico  oil spill and suspended dividend payments to its shareholders.

The deal gave Obama his most tangible success since the  crisis began 58 days ago and came after weeks of criticism of  his handling of the disaster. It also eased U.S. pressure on  BP, whose share price has withered amid uncertainty over the  spill’s cost to the British energy giant.

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 for the worst oil spill  in U.S. history.

“I do thank you for the patience that you have during this  difficult time,” BP Chairman 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 promised to make sure damage claims are handled  swiftly and fairly.

Chief Executive Tony Hayward, the public face of BP’s  response to the disaster, will appear today at a  congressional hearing where he will face intense scrutiny over  events leading up to the spill and BP’s cleanup 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 120 miles (190 km) of U.S. coastline,  imperiled multibillion-dollar fishing and tourism industries  and killed birds, sea turtles and dolphins.

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 percent 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 money.

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 program 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.”

The oil giant represents a large part of investment  portfolios in Britain. Obama and British Prime Minister David  Cameron talked about the issues around the spill last weekend.

BP’s shares gyrated in volatile New York trading, dropping  as much as 5 percent before swinging to positive territory on  news of the agreement on 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 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.

As BP stock saw some relief, shares in Anadarko fell 3.69  percent and Transocean lost 3.09 percent in New York. Anadarko  is part owner of the blown-out well and Transocean owned the  rig that blew up.