BP and the 20 Billion $$$$$$$$

[Ognir]

Fund will be run by Feinberg  

[Ognir]

BP agrees to $20 billion fund for spill claims

http://www.reuters.com/article/idUSN1416392020100616

(Reuters) - BP Plc agreed to a $20 billion special oil spill claims fund on Wednesday, meeting President Barack Obama's demand and easing U.S. political pressure on the embattled British energy giant that has unnerved investors.

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An Obama administration official confirmed to Reuters the preliminary deal, which followed talks between Obama and top BP executives, their first since the start of the 58-day-old crisis in the Gulf of Mexico.

Facing one of the biggest tests of his presidency, Obama told Americans in a televised speech on Tuesday he would demand that BP set aside money in an independently administered fund to pay for claims arising from the worst oil spill in U.S. history.

He did not specify an amount but U.S. lawmakers had called for $20 billion to be set aside to address complaints from Gulf coast residents that the claims process was too long and complicated and that BP was paying out too little money.

BP's shares took a bumpy ride in volatile New York trading, dropping as much as 5 percent in the morning before swinging back to punch into positive territory after news of the agreement on the fund, known as an escrow account.

Those gains, however, were short-lived. The stock crept lower in the afternoon following comments from an Obama administration official that the escrow would not cap BP's liabilities in the spill.

"It takes a little bit of pressure off BP," Iain Armstrong, an oil analyst at brokerage Brewin Dolphin in London, said of the escrow agreement. "If it gets Obama off their back, it can't be that bad."

What remains unclear is how BP would pay for the fund and how its quarterly dividend might be affected.

Jason Gammel, an analyst with Macquarie Securities in New York, said despite the recent battering of its share price, BP was still in a strong financial position, which should enable it to continue its quarterly payments to shareholders.

"We don't think that they will have to suspend the payout of the dividend," Gammel said.

Some U.S. lawmakers have called on the company to suspend payment of the dividend to ensure it has enough money to pay for damages, unnerving investors.

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

FEINBERG TO ADMINISTER FUND

Kenneth Feinberg will administer the BP escrow fund, according to the administration official.

Feinberg was the "pay czar," the official who oversaw compensation for executives at companies that received federal bailout funds. Feinberg also oversaw a compensation fund for victims of the September 11, 2001, attacks on the United States.

BP executives, including Chairman Carl-Henric Svanberg, CEO Tony Hayward and BP U.S. boss Lamar McKay, filed into the West Wing of the White House just before 10 a.m. ET (1400 GMT) for talks with Obama.

The talks had been due to last for about two hours but were dragging on at 1:30 p.m. ET, a White House official said. Obama was not due to attend the whole meeting.

The BP executives were accompanied by the company's legal counsel Rupert Bondy and noted Washington lawyer Jamie Gorelick, a former deputy attorney general in the Clinton administration.

The White House team included: White House counsel Bob Bauer; Larry Summers, one of Obama's top economic advisers; Coast Guard Admiral Thad Allen, the administration's point man for the crisis; Attorney General Eric Holder; and a number of other Cabinet members.

With the meeting running over its allotted time, Obama delayed a Rose Garden statement on the oil spill that had been scheduled for 12:15 p.m. (1615 GMT).

'REASONABLE CLAIMS'

Underscoring concerns in Britain that Obama is trying to increase BP's potential liabilities for the spill, British Prime Minister David Cameron said BP was eager to face claims arising from the spill but it should not have to pay any that are too far removed from the disaster.

Cameron is under intense domestic pressure to stand up for BP, which many Britons perceive is being treated too harshly by the U.S. administration to the detriment of British pension funds and other investors with big stakes in BP.

"While it's important that they (BP) pay reasonable claims, and BP accept this themselves, they do need a level of certainty, and this is BP's worry, that there won't be claims entertained that are three or four times removed from the oil spill," Cameron said during a BBC radio phone-in program.

As BP's executives met in a marathon session with Obama administration officials at the White House, the company continued to wrestle with the oil spill in the Gulf.

It started up a second system to siphon oil from its gushing leak early on Wednesday, a day after a team of U.S. scientists raised their high-end estimate of the amount of crude oil flowing from its well by 50 percent to between 35,000 and 60,000 barrels per day.

The new containment cap system is intended to increase overall collection capacity to 28,000 barrels a day from around 15,000 a day now. The company is drilling relief wells that it hopes will definitively halt the spill in August.

(Additional reporting by Matt Spetalnick, Caren Bohan and Patricia Zengerle in Washington, Estelle Shirbon and Tom Bergin in London and Kristen Hays in Houston; Writing Ross Colvin; Editing by Will Dunham)