BP oil spill 2010: Obama sets them straight
US President Barack Obama (above) brought BP to its knees after divulging information that the company responsible for the oil spill in the Gulf of Mexico was spending US$50 million on advertising to safeguard its image, and contemplating US$10 billion in dividend payouts to its shareholders in the wake of what has been described as the worst environmental disaster in US history.
Today's announcement by both the US President and BP executives that the latter would be establishing a US$20 billion fund to settle claims from affected Americans should therefore come as no surprise to anyone who had been following the saga since the April 20, 2010 accident.
The Obama Administration from the start had been promising to "hold BP accountable" and "make the people of the Gulf region whole again." The case of the US$20 billion claims fund did not start today. President Barack Obama himself made four trips to the region, speaking to ordinary folk (voters) and promising them justice for their destroyed livelihoods.
Obama showed that no amount of public or media relations could protect a company in the court of public opinion once the undeniable facts were out in the public domain, and that is what he helped do, put the facts in the public domain, and force the company to be more transparent.
As public pressure on the Government to "federalize" the oil spill response grew, the Obama Administration, through its Incident Commander Thad Allen increased its pressure on BP. This pressure culminated today in the creation of a US$20 billion fund to settle claims from the affected.
With the information that BP had been spending or planning to spend the aforementioned money, the US President effectively intercepted whatever goodwill the US$50 million was going to buy. He ultimately forced the company to "make the region whole again" by acknowledging, apologising and acting - customer relations basics not often taught in business classrooms. The President and members of his Administration kept repeating that the Federal Government did not want to hear about BP "nickel and diming" the affected American people when the company was seemingly prepared to make big payouts to its shareholders and on image enhancement.
Up to Monday, the US President could be seen in his Robin Hood role, meeting with small business owners and fisherfolk of the Gulf, sitting with them, eating with them, taking note of their stories and perhaps most importantly promising to stand by them until their lives were restored and until the Gulf region was made whole again. He was also abundantly clear that BP would be forced by the Federal Government to settle their claims.
The case is far from over, however. The oil is still leaking.
The following is the verbatim news release from BP.
Following a meeting with the President of the United States, the BP Board announces an agreed package of measures to meet its obligations as a responsible party arising from the Deepwater Horizon spill.
Agreement was reached to create a $20 billion claims fund over the next three and a half years on the following basis:
BP will initially make payments of $3 billion in Q3 of 2010 and $2 billion in Q4 of 2010. These will be followed by a payment of $1.25 billion per quarter until a total of $20 billion has been paid in.
While the fund is building, BP's commitments will be assured by the setting aside of U.S. assets with a value of $20 billion. The intention is that this level of assets will decline as cash contributions are made to the fund.
The fund will be available to satisfy legitimate claims including natural resource damages and state and local response costs. Fines and penalties will be excluded from the fund and paid separately. Payments from the fund will be made as they are adjudicated, whether by the Independent Claims Facility (ICF) referred to below, or by a court, or as agreed by BP.
The ICF will be administered by Ken Feinberg. The ICF will adjudicate on all Oil Pollution Act and tort claims excluding all federal and state claims.
Any money left in the fund once all legitimate claims have been resolved and paid will revert to BP.
The fund does not represent a cap on BP liabilities, but will be available to satisfy legitimate claims. Further and more detailed terms regarding the establishment and operation of the claims fund and the ICF will be finalized and announced as soon as possible.
As a consequence of this agreement, the BP Board has reviewed its dividend policy. Notwithstanding BP's strong financial and asset position, the current circumstances require the Board to be prudent and it has therefore decided to cancel the previously declared first quarter dividend scheduled for payment on 21st June, and that no interim dividends will be declared in respect of the second and third quarters of 2010.
The Board remains strongly committed to the payment of future dividends and delivering long term value to shareholders. The Board will consider resumption of dividend payments in 2011 at the time of issuance of the fourth quarter 2010 results, by which time it expects to have a clearer picture of the longer term impact of the Deepwater Horizon incident.
The Board believes that it is right and prudent to take a conservative financial position given the current uncertainty over the extent and timing of costs and liabilities relating to the spill. BP's businesses continue to perform well, with cash flows from operations expected to exceed $30 billion in 2010 at current prices and margins before taking into consideration costs related to the Deepwater Horizon spill. BP's gearing level remains at the bottom of its targeted band of 20-30 per cent. In addition, the Company has over $10 billion of committed banking facilities. To further increase the Company's available cash resources, the Board intends to implement a significant reduction in organic capital spending and to increase planned divestments to approximately $10 billion over the next twelve months.
Chairman Carl-Henric Svanberg said: "We appreciated the constructive meeting conducted by the President and his senior advisers and are confident that the agreement announced today will provide greater comfort to the citizens of the Gulf coast and greater clarity to BP and its shareholders. We welcome the administration's statements acknowledging that BP is a strong company and that the administration has no interest in undermining the financial stability of BP. This agreement is a very significant step in clarifying and confirming our commitment to meet our obligations. We regret the cancellation and suspension of the dividends, but we concluded it was in the best interests of the Company and its shareholders."
Chief Executive Tony Hayward (above) said: "From the outset we have said that we fully accepted our obligations as a responsible party. This agreement reaffirms our commitment to do the right thing. The President made it clear and we agree that our top priority is to contain the spill, clean up the oil and mitigate the damage to the Gulf coast community. We will not rest until the job is done."
The following is the verbatim Statement by the President After Meeting with BP Executives
THE PRESIDENT: Good afternoon, everybody. I just concluded a constructive meeting with BP’s chairman, Carl-Henric Svanberg, and I raised two issues at the meeting. First was the containment of the oil that is still spewing into the Gulf. As I mentioned last night, my administration has directed BP to mobilize additional equipment and technology, and in the coming days and weeks, these efforts should capture up to 90 percent of the oil that is leaking out of the well.
Now, that’s not good enough. So we will continue to press BP and draw on our best minds and resources to capture the rest of the oil until the company finishes drilling a relief well later in the summer that is expected to stop the leak completely.
The second topic revolved around the issue of claims. As I traveled across the Gulf I heard growing frustration over the pace at which claims had been paid. And I also heard concerns about whether BP will make resources available to cover legitimate claims resulting from this disaster. So this discussion today was essential.
Currently, under federal law, there is a $75 million cap on how much oil companies could under certain circumstances be required to pay for economic damages resulting from a spill such as this. That amount obviously would be insufficient. That’s why I'm pleased to announce that BP has agreed to set aside $20 billion to pay claims for damages resulting from this spill.
This $20 billion will provide substantial assurance that the claims people and businesses have will be honored. It’s also important to emphasize this is not a cap. The people of the Gulf have my commitment that BP will meet its obligations to them. BP has publicly pledged to make good on the claims that it owes to the people in the Gulf, and so the agreement we reached sets up a financial and legal framework to do it.
Another important element is that this $20 billion fund will not be controlled by either BP or by the government. It will be put in a escrow account, administered by an impartial, independent third party. So if you or your business has suffered an economic loss as a result of this spill, you’ll be eligible to file a claim for part of this $20 billion. This fund does not supersede either individuals’ rights or states’ rights to present claims in court. BP will also continue to be liable for the environmental disaster it has caused, and we’re going to continue to work to make sure that they address it.
Additionally, BP voluntarily agreed to establish a $100 million fund to compensate unemployed oil rig workers affected by the closure of the deepwater rigs.
We’ve mutually agreed that Ken Feinberg will run the independent claims process we’re putting in place. And there will be a three-person panel to adjudicate claims that are turned down. Every effort will be made to expedite these claims. Ken has long experience in such matters, including running the fund that compensated the victims of 9/11. And I’m confident he will ensure that claims are administered as quickly, as fairly, and as transparently as possible.
BP’s liabilities for this spill are significant -- and they acknowledge that fact. We will continue to hold BP and all other responsible parties accountable. And I’m absolutely confident BP will be able to meet its obligations to the Gulf Coast and to the American people. BP is a strong and viable company and it is in all of our interests that it remain so. So what this is about is accountability. At the end of the day, that’s what every American wants and expects.
The structure we’re establishing today is an important step towards making the people of the Gulf Coast whole again, but it’s not going to turn things around overnight. And I want all Americans to know that I will continue to fight each and every day until the oil is contained, until businesses recover, and until the Gulf Coast bounces back from this tragedy, as I know it will.
One last point. During a private conversation with Chairman Svanberg I emphasized to him that for the families that I met with down in the Gulf, for the small business owners, for the fishermen, for the shrimpers, this is not just a matter of dollars and cents; that a lot of these folks don’t have a cushion. They were coming off Rita and Katrina; coming off the worst economy that this country has seen since the Great Depression, and this season was going to be the season where they were going to be bouncing back. Not only that, but this happened, from their perspective, at the worst possible time, because they’re making their entire income for the year in the three or four months during which folks can take their boats out, people are coming down for tourism.
And so I emphasized to the chairman that when he’s talking to shareholders, when he is in meetings in his boardroom, to keep in mind those individuals; that they are desperate; that some of them, if they don’t get relief quickly, may lose businesses that have been in their families for two or three generations. And the chairman assured me that he would keep them in mind.
That’s going to be the standard by which I measure BP’s responsiveness. I think today was a good start, and it should provide some assurance to some of the small business owners and individuals down in the Gulf who I was visiting with that BP is going to meet its responsibilities. But I indicated to the chairman that, throughout this process, as we work to make sure that the Gulf is made whole once again, that the standard I’m going to be applying is whether or not those individuals I met with, their family members, those communities that are vulnerable, whether they are uppermost in the minds of all concerned. That’s who we’re doing this work for.
All right. Thank you very much, everybody.
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CREDITS:
- Photos by BP and the White House