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

The White House and BP tentatively agreed that the oil giant will create a $20 billion fund to pay claims for the worst oil spill in American history, to be independently run by the mediator who oversaw the 9/11 victims compensation fund, Kenneth Feinberg, 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 this morning with BP’s

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[BP  Loading...      ()   ] top executives and lawyers. Its 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 well be spewing some 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.

CNBC BP Executives on their way to the White House

The negotiations since late last week have been closely held given the market sensitivity for BP, whose stock has lost about half its value. 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.

Mr. Feinberg currently serves as 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 in the wake of 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.

The tentative agreement comes a day after Mr. Obama addressed the nation from the Oval Office, when he told Amerians that he planned to tell the chairman of BP, Carl-Henric Svanberg, “that he is to set aside whatever resources are required to compensate the workers and business owners who have been harmed as a result of his company’s recklessness.”

On Wednesday morning, BP said it would “keep the market fully informed” about developments from the meeting.

After the president’s speech on Tuesday, BP said from London in a statement: “We share the president’s goal of shutting off the well as quickly as possible, cleaning up the oil and mitigating the impact on the people and environment of the Gulf Coast.” The statement added that the company looked forward to “a constructive discussion about how best to achieve these mutual goals.”

In his speech, Mr. Obama called Americans to join a “national mission” to move away from reliance on oil and develop alternative sources of energy, and said the environmental disaster had made it imperative for Congress to act quickly to overcome “a lack of political courage and candor.”

Speaking to a national television audience for the first time from the Oval Office, Mr. Obama also promised a long-term plan to make sure that the gulf states suffering from the oil spill were made whole again. He said he was appointing Ray Mabus, the secretary of the Navy and a former governor of Mississippi, to develop a Gulf Coast restoration plan in cooperation with states, local communities, tribes, fishermen, conservationists and gulf residents.

The government on Tuesday released a new, much higher estimate of the amount of oil still flowing from the well, almost two months after an explosion and fire destroyed the drilling rig that was preparing it for production. The new estimate said that as much as 60,000 barrels of crude could now be spewing into the Gulf of Mexico each day, a sharp increase over the estimate last week of 25,000 to 30,000 barrels a day.