Thursday, June 17, 2010

Day 59 BP Oil Spill: More On $20bn Agreement

Jun 17: Following yesterday's meeting with President Obama, BP issued a release providing further details on the agreed package of measures to meet its obligations as a responsible party arising from the Deepwater Horizon spill [See WIMS 6/16/10]. According to the release, agreement was reached to create a $20bn claims fund over the next three and a half years on the following basis:
  • BP will initially make payments of $3bn in Q3 of 2010 and $2bn in Q4 of 2010. These will be followed by a payment of $1.25bn per quarter until a total of $20bn 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 $20bn. 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.

    BP said, "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."

    BP said further, "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 $30bn 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 $10bn 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 $10bn over the next twelve months."
    BP 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." 
    In other matters, BP reported on June 17, that optimization of the dual system, LMRP Cap and the Q4000 Direct Connect, will continue over the next few days. For the last 12 hours on June 16th (noon to midnight), approximately 7,710 barrels of oil were collected and approximately 2,600 barrels of oil and 22 million cubic feet of natural gas were flared. On June 16th, a total of approximately 14,750 barrels of oil were collected and approximately 3,850 barrels of oil and 40 million cubic feet of natural gas were flared. Total oil recovered from both the LMRP Cap and Q4000 systems since they were implemented is approximately 179,000 barrels. In testimony before the Energy and Commerce, Subcommittee on Oversight and Investigations today, Tony Hayward, Chief Executive Officer, BP PLC said, "We expect to optimize collection over the next few days to levels well above what was previously accomplished."
    Also, NOAA has expanded the closed fishing area in the Gulf of Mexico to capture portions of the oil slick moving beyond the area's current northern boundary, off the Florida panhandle's federal-state waterline. The boundary was moved to Panama City Beach.The Federal closure does not apply to any state waters. Closing fishing in these areas is a precautionary measure to ensure that seafood from the Gulf will remain safe for consumers. The closed area now represents 80,806 square miles, which is approximately 33.4 percent of Gulf of Mexico federal waters. 
Note: In our daily report to subscribers we also reported on Three BP Gulf Oil Congressional Hearings Today; GAO's Report On Effective Independent Oversight Of Oil & Gas; and Groups Issue Statement On Climate-Energy Legislation -- all related to the BP Oil Spill.

    Access a release from BP on the $20bn commitment (click here). Access the White House fact sheet on the $20 billion funding and other funds (click here). Access a White House blog posting on the BP meeting with links to the President's remarks (click here). Access a June 16, Investor Briefing from BP (click here). Access additional information updates and links to releases and briefings on the Administration's response from the Unified Command website (click here). Access the BP response website for links to visuals more information on the recovery work (click here). Access details on the NOAA fish closing area (click here).