US targets $20bn BP pay-out

US targets $20bn BP pay-out
By Ed Crooks in London, Edward Luce in Theodore, Alabama, and Stephanie Kirchgaessner in Washington
Copyright The Financial Times Limited 2010
Published: June 14 2010 15:26 | Last updated: June 15 2010 01:28
http://www.ft.com/cms/s/0/7da30d60-77b4-11df-802a-00144feabdc0.html


Shares in BP tumbled more than 9 per cent on Monday as US Democratic senators called on the multinational oil company to inject $20bn immediately into a ring-fenced fund to clean up the Gulf of Mexico spill.

BP’s board held a teleconference on Monday where it discussed the charged issue of whether to continue paying a dividend. Options included paying it into an escrow account to be released once the costs of the slick caused by April’s explosion on the Deepwater Horizon rig had been met, or paying a scrip dividend in shares.

BP would not comment on the dividend, which is due to be announced on July 27. It also emerged on Monday that BP had hired Blackstone, Goldman Sachs and Credit Suisse to help it manage its liabilities.

Investors expect the company to offer some form of suspension of the dividend to Barack Obama on Wednesday when the US president is due to meet Carl-Henric Svanberg, BP chairman, and Tony Hayward, chief executive.

Mr Obama said on Monday that the administration has had a “constructive conversation” with BP about paying claims.

“We have begun a preliminary conversation about how do we structure a mechanism to deal with legitimate claims – not just next week or next month but far into the future – that are dealt with justly, fairly and promptly,” Mr Obama said after a tour of an emergency staging facility in Theodore, Alabama.

“So far, we have had a constructive conversation. And it is my hope that by the time I meet the [BP] chairman on Wednesday, we will have made more progress.”

In a letter to Mr Hayward, Harry Reid, the Democratic leader in the Senate, said the creation of a $20bn account would serve as an “act of good faith” and would be an important first step in ensuring that BP would not delay or evade responsibility for damages.

The White House on Tuesday said that BP should be capturing more than 90 per cent of the oil escaping from its Gulf of Mexico well by the end of this month, an upbeat projection made as President Barack Obama prepares to deliver his first Oval Office address on Tuesday night.

Mr Obama, who has been on the Gulf Coast since Monday morning, will return to Washington on Tuesday afternoon to give a televised address in which he will lay out a plan to restore the region. He is likely to name a person to act as the “recovery czar” to oversee the restoration efforts.

The Obama administration has proposed that a fund should be set up in an escrow account, paid for by BP but with an independent administrator, to meet claims from victims of the spill.

The fund could form the basis of a compromise between the administration and BP, ensuring that victims are fully compensated while not imposing costs that could drive the company out of business.

Members of the energy committee in the House of Representatives also wrote to Mr Hayward, saying their investigation had uncovered evidence that “is raising serious questions about the decisions made by BP in the days and hours before the explosion on the Deepwater Horizon”.

Mr Hayward is due to face the committee’s subcommittee on oversight and investigations on Thursday. BP shares fell 9.3 per cent to 355.5p.

Mr Obama said the environmental disaster unfolding in the Gulf would have as profound an effect on US thinking on energy as the 2001 terrorist attacks did on its foreign policy.

“I think this disaster is going to shape how we think about the environment and energy for many years to come,” the president said in an interview with Politico, the political website.

BP on Monday said that it hoped to be able to capture 50,000 barrels of oil by the end of June and Robert Gibbs, the president’s spokesman, on Tuesday said the White House agreed this was feasible.

“I think the containment strategy that the Coast Guard and the federal government pushed BP to accelerate, we believe, will capture most of the oil that is leaking from the Gulf right now,” Mr Gibbs told ABC on Tuesday morning, one in a slew of television appearances before the president’s address.

“What we have are physics problems. The top [containment] cap can only take so much. They’re adding additional lines through the direction of somebody like [energy] Secretary Chu that will bring more and more of that oil to the surface and out of the Gulf,” Mr Gibbs said.

The crisis was now “at an inflection point,” Mr Gibbs, said, and the president would lay out “a direct and clear plan” to meet the challenges.

In his address, the president will also outline what kind of regulatory framework is needed to oversee the offshore drilling industry and ensure that a similar accident does not occur again, he said.