BP Agrees to Set Aside About $20 Billion for Spill Claims

The New York Times
June 16, 2010
Stephen Crowley

WASHINGTON — The White House and BP tentatively agreed on Wednesday that the oil giant would create a $20 billion fund to pay claims for the worst oil spill in American history. The fund will be independently run by Kenneth Feinberg, the mediator who oversaw the 9/11 victims compensation fund, according to two people familiar with the deliberations.
The agreement was not final and was still being negotiated when President Obama and his top advisers met Wednesday morning with BP’s top executives and lawyers. The preliminary terms would give BP several years to deposit the full amount into the fund so it could better manage cash flow, maintain its financial viability and not scare off investors.

The talks have been complicated by the fact that BP’s ultimate liabilities for the cleanup and lost business are unknowable since the two-month-old leak of its well in the Gulf of Mexico could be spewing oil for months more. To date, BP has spent more than $1 billion on containment, cleanup and claims from the Coast Guard, fishermen, oil workers and other businesses from Louisiana to Florida.

Since late last week, the negotiations have been closely held given the market sensitivity for BP, which has seen its stock lose about half its value since the spill. BP’s next dividend for shareholders is another issue on the table. Some members of Congress have called for blocking any dividend payments, though the legality of such action is in dispute, or for putting the dividend in another escrow account pending payment of claims to victims. Either option would be problematic for many institutional investors and pension funds with stock in BP.

BP shares, which had been trading lower, regained lost ground in Wednesday’s morning session. Shares were slightly higher shortly after reports of the escrow fund leaked out.

Mr. Feinberg is now the administration’s “pay czar,” the overseer of executive compensation at the nation’s biggest financial institutions, a role created in response to public outrage at big bank bonuses after the 2008 and 2009 financial bailouts.

A specialist in mediation and dispute resolution, Mr. Feinberg was special master for the September 11th Victim Compensation Fund and previously helped in cases involving compensation for victims of Agent Orange chemical poisoning from the Vietnam War and asbestos-related injuries.    more …