BP agrees to $20 billion fund for oil spill costs
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Following a meeting with US President Barack Obama on Wednesday BP executives agreed to put $20 billion dollars into a fund to meet costs from the Gulf of Mexico oil spill, as the firm froze shareholder payments and announced plans to offload assets.
AFP - Embattled oil giant BP froze payments to shareholders Wednesday and announced plans to offload billions of dollars in assets, as it faced mounting costs from the Gulf of Mexico oil spill.
On the same day that the firm was dragged to the White House, where it agreed to set aside 20 billion dollars for spill costs, executives announced a series of belt-tightening measures to save the company around 17 billion dollars this year.
Emerging from a meeting with President Barack Obama, BP chairman Carl-Henric Svanberg vowed the firm would live up to all "legitimate responsibilities," as executives moved to reassure investors the 101-year-old firm will not go under.
Regular payouts for shareholders will be frozen for the rest of the year, Svanberg said, saving the firm an estimated seven billion dollars, and quelling a major source of public anger.
Top US lawmakers had demanded the company cover all costs of the spill before rewarding shareholders with a dividend that usually amounts to around 2.5 billion dollars per quarter.
"The BP board decided we will not pay any further dividends this year," said a contrite Svanberg, as he apologized for the spill.
"Words are not enough. We understand we will and we should be judged by our actions."
Meanwhile BP chief financial officer Byron Grote told investors the company would try to offload 10 billion dollars' worth of assets this year to save costs.
Outlining a "deeply conservative fiscal approach" in the face of still unknown costs of the spill, Grote said the firm would sell mainly "non-core" assets.
BP must pay five billion dollars into the escrow fund by the end of the year and a billion dollars each quarter for the remaining three years.
While the fund is being built, BP said it would set aside 20 billion dollars worth of US assets as collateral.
Grote said the 20 billion figure came from "negotiation with US government officials," he said.
"Setting up this fund is merely a vehicle... if the fund is not fully utilized then BP would be able to pull out any residual funds that are in there."
The White House meanwhile insisted that the fund's value of 20 billion dollars was "neither a floor nor a ceiling on liability," and announced BP would also chip in an additional 100 million dollars to help oil workers who have lost their jobs.
The account will not be used to pay fines or penalties that BP incurs.
Wall Street reacted positively to the news, with BP's shares trading up around 1.5 percent in New York at the close.
Analysts said BP, which has already spent some 1.6 billion dollars battling the spill and made a profit of around 14 billion dollars in 2009, should be strong enough to weather the storm even if it has to borrow more.
"Regardless how the payments mechanically happen, BP has the financial strength to fund it," said Jason Gammel of Macquarie Research.
"They have enough cash flow and quality assets that will allow it to fund that type of liability."