Money Matters, Simplified.
BP to set up $20 billion escrow account for oil spill victims
by Jamie Anderson - June 17, 2010 - comments
BP, owner of the ruptured well that is spewing gallons of oil in the Gulf of Mexico, after four days of intense negotiations with the White House, announced that it would create a $20 billion fund to pay damage claims to those affected by the oil spill.
BP Plc knows that half measures will not work when it comes to responding to the crisis in the Gulf of Mexico.
Be it stemming the flow of leaking oil, clean up efforts, or the resultant claims of the devastation, the drilling behemoth realizes that the onus lies with the company.
Call it social responsibility or buckling under pressure from the U.S. administration and the society alike, BP has now set aside $20 billion in an escrow account to deal with all the economic costs associated with the catastrophe.
"We have always met our obligations and responsibilities," said BP Chairman Carl-Henric Svanberg, speaking outside the White House.
President Barack Obama termed the claims fund "an important step toward making the people of the Gulf Coast whole again."
He promised that his company “will look after the people affected, and we will repair the damage to this region."
Dividends suspended
The escrow account, to be managed by an independent administrator, will be funded over three and a half years.
To begin with, BP will infuse an initial payment of $3 billion in the third quarter of this year, followed by another $2 billion in the fourth quarter. Thereafter by quarterly payments of $1.25 billion would be made into the account.
Another amount of $100 million has been set aside by the company to recompense oil industry workers who lost their jobs after the government announced a suspension on deep-water drilling.
The task of management of the escrow fund has been entrusted to Kenneth Feinberg, a veteran claims administrator. The compensation payouts for victims of the Sept. 11, 2001 terror attacks were also supervised by Feinberg.
The company also announced that it will not declare the quarterly dividend payments to its shareholders for the rest of this year. The amount thus saved would flow into the escrow account.
President Barack Obama termed the claims fund "an important step toward making the people of the Gulf Coast whole again."
Few companies could afford this
The U.S. President clarified that the creation of the fund does not cap BP’s responsibility.
Senate Majority Leader Harry Reid, D-Nev., called the creation of the fund "a good first step toward compensating victims."
Sen. Robert Menendez, D-N.J., while hinting that BP, in no way deserves kudos for setting up the fund, called the fund the "very least BP must do to start making the coastal communities devastated by its recklessness whole again."
To be fair, the amount set aside by BP is huge. It is approximately the entire NASA budget for one year. Put differently, BP could have used this money to buy out another company, a company as big as Kellogs.
Lincoln Mayer, a lawyer focusing on energy and antitrust at McDermott Will & Emery, said, "Few companies could afford a $20 billion mistake. BP is one of them, and that's a good thing."