WASHINGTON — President Barack Obama received a $20 billion compensation guarantee and an apology to the nation from British oil giant BP on Wednesday and announced that the company would set up a major claims fund for shrimpers, restaurateurs and others whose lives and livelihoods are being wrecked by oil flooding into the Gulf of Mexico.
BP is suspending its dividends to shareholders to help pay for the costs, said chairman Carl-Henric Svanberg.
Applause broke out at a community meeting in Orange Beach, Ala., when the news was announced.
“We asked for that two weeks ago, and they laughed at us,” Mayor Tony Kennon said. “Thank you, President Obama, for taking a bunch of rednecks’ suggestion and making it happen.”
Obama also said the company had agreed to set up a separate $100 million fund to compensate oil-rig workers laid off as a result of his six-month moratorium on deep-water drilling.
As huge as the $20 billion seems, Obama and London- based BP PLC said it was by no means a cap.
The deal also adhered to what Obama had said was his non-negotiable demand: that the fund and the claims process be administered independently from BP. It won’t be a government fund, either, but will be led by the administration’s “pay czar,” Kenneth Feinberg, better known as the man who oversaw the $7 billion government fund for families of victims of the Sept. 11, 2001, terrorist attacks.
The April 20 explosion of the Deepwater Horizon oil rig killed 11 workers and has sent millions of gallons of crude spewing into the water from the broken well a mile below the ocean’s surface — as much as 118 million gallons so far.
The use of the BP escrow fund is intended to avoid a repeat of the painful aftermath of the 1989 Exxon Valdez oil disaster in Alaska, when the fight over money dragged out in courts over roughly two decades.
“What this is about is accountability,” Obama said in brief remarks in the state dining room after a four-hour, on-again, off-again White House negotiation session with BP executives. “For the small-business owners, for the fishermen, for the shrimpers, this is not just a matter of dollars and cents. . . . A lot of these folks don’t have a cushion.”
On the driveway outside, BP’s Svanberg apologized for “this tragic accident that should never have happened.”
“We care about the small people,” he said.
That comment wasn’t as well-received as the promise of compensation.
“We’re not small people,” said Justin Taffinder of New Orleans. “We’re human beings. They’re no greater than us. We don’t bow down to them.”
Asked about the remark by Svanberg, who is Swedish, BP spokesman Toby Odone said in an e-mail: “It is clear that what he means is that he cares about local businesses and local people. This was a slip in translation.”
In creating a victims-compensation fund, BP will use noncore U.S. assets as security for its $20 billion obligation. Chief financial officer Byron Grote stopped short of calling it a lien, but he said the assets will be used as security.
If BP had to borrow money in the future to pay any of its obligations, that might prove difficult because rising investor concerns could raise the company’s borrowing costs. As of the end of March, BP reported $6.8 billion in cash and cash equivalents.
The company will make initial payments into the escrow fund of $3 billion this summer and $2 billion in the fall, followed by $1.25 billion per quarter until the $20 billion is reached.
Aware that a healthy BP is in everyone’s interest, Obama gave a plug for what he called “a strong and viable company” — a day after he had accused it of recklessness. BP shares gyrated as the events unfolded. They rose more than 5 percent to $33 after Obama’s words of support. But they slipped back as investors digested the full extent of BP’s commitments, ending the day with a gain of 45 cents to close at $31.85 a share.
Responding to the deal, Mississippi Gov. Haley Barbour said Wednesday he’s not sure the federal government should have forced BP’s hand.
Most of Mississippi’s beaches, however, remain clean because currents are carrying oil eastward toward Alabama.
Barbour’s response was sharply different from that of Louisiana Gov. Bobby Jindal, who said: “We think it will help ensure that BP is taking ownership.”
So far, 66,000 claims have been filed, $81 million awarded and 26,000 checks cut, said Coast Guard Adm. Thad Allen.
