BP finally caved into White House pressure yesterday and agreed to set aside $20bn (£13.5bn) to pay for compensation claims arising from the Gulf of Mexico catastrophe as well as suspend its dividend payments this year.
After more than five hours of discussions, the embattled UK oil major reached an agreement with US President Barack Obama and his administration to ring fence the cash into an independently run account.
BP said that it will pay $3bn into the account during the third quarter, $2bn in the fourth quarter and $1.25bn every quarter until the full amount is reached.
Obama has appointed “pay czar” Kenneth Feinberg to independently run the fund, which will have a three-member review panel to decide compensation payments to victims of the oil spill.
The president said yesterday: “This $20bn fund will provide substantial assurance but this is not capped.”
BP has also agreed to provide another $100m to compensate the unemployed Deepwater Horizon rig workers who lost their jobs from the 20 April explosion.
BP will also cut its capital spending and sell assets worth $10bn to fund its liabilities.
“We regret the cancellation and suspension of the dividends, but we concluded it was in the best interests of the company and its shareholders,” said chairman Carl-Henric Svanberg.
Investors appeared to initially throw their weight behind the BP board’s decision, with PIMCO, the world’s largest bond investor, buying $100m of BP debt. In the US, BP’s American Depositary Receipts rallied to close up 45 cents at $31.85.
In his strongest show of support so far Prime Minister David Cameron said the company should not be exposed to a string of future damages claims.
BP COMPENSATION FUND MANAGER
NICKNAMED the “pay czar” it is no wonder that President Obama has turned to Kenneth Feinberg to manage the BP Deepwater Horizon Victim Compensation Fund.
Feinberg, a US qualified attorney, is best known for his role as special master of the September 11th Victim Compensation Fund, which he established the regulations for and governed himself.
During the 33-month period that he dedicated to managing the compensation to 9/11 victims, he sifted through each and every claim form himself and decided which families would be awarded funds.
Feinberg worked for free during that period and awarded $7bn (£4.7bn) to 97 per cent of claimants.
Last year, Feinberg was appointed by the US Treasury Department to oversee the compensation of top executives at companies that have received bailout funds from the American government.
He also established the Hokie Spirit Memorial Fund, set up for the victims of the shootings at Virginia Tech High School in 2007.
During his time as a lawyer, Feinberg, who was born in Massachusetts, established the Washington office for law firm Kaye Scholer.