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Obama steps up pressure on BP for oil spill fund Add to ...

U.S. President Barack Obama is turning up the heat on BP PLC, demanding that London-based company set aside billions of dollars in a reserve account and speed up its compensation plan for Gulf residents.

Mr. Obama, who is under pressure himself for his handling of the Gulf crisis, is travelling to the region Monday and Tuesday before addressing the country from the Oval Office, a prime-time television event aimed at portraying the embattled President as a leader who is taking all actions possible to deal with the crisis.

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He will meet Wednesday with BP executives - including BP chairman Carl Henric Svanberg and much-maligned chief executive Tony Hayward - where he will urge them to set aside billions of dollars into an escrow account to cover the economic costs from the blowout, and to establish an independent claims procedure.

At the same time, executives from the top international oil companies - Exxon Mobil Corp., Chevron Corp., Royal Dutch Shell PLC and ConocoPhillips Co. - are due to appear at a congressional committee examining the offshore industry, where they will stress their own safety records in the Gulf of Mexico.

Coast Guard Admiral Thad Allen said Sunday the federal government is concerned that BP is not moving quickly enough to pay the claims of businesses and residents who have suffered financial losses due to the blowout and closure of the fisheries.

"So one of the things we're probably going to be talking about is an independent third party that could administer a fund to make sure it happens quicker," Adm. Allen told CBS's Face the Nation.

Other administration officials, as well as those from Louisiana and Alabama, want BP to put billions of dollars into an escrow account to provide greater public assurances that the company will meet its financial obligations.

Despite the environmental and economic fallout from the blowout, and the fact that its cause is not yet known, Republican governors in Louisiana and Mississippi are stepping up the pressure on Mr. Obama to allow drilling to resume in the Gulf's deep water, saying the region needs the jobs and the United States needs the oil.

"What's going on right now is hurting my state's economy and these other Gulf States," Mississippi Governor Haley Barbour told CBS's Face the Nation on Sunday. "But this moratorium is going to hurt the national economy."

He praised the industry's safety record, saying there have been 30,000 wells drilled in the Gulf of Mexico in the past 50 years and the BP accident was the first major spill. While that's true for U.S. waters, Petroleos Mexicanos (PEMEX) did suffer a blowout at its Ixtoc I well, 950 kilometres south of Texas, which was the world's largest.

The administration has declared a six-month moratorium on deep-water drilling in the Gulf of Mexico to give time to investigators to determine the cause, and for regulators and industry alike to come up with improved safety standards and practices to ensure it doesn't happen again.

International companies are already looking to reassign the deep-water drilling rigs to other regions - West Africa, Brazil and southern Asia - where prospects for oil discovery have prompted major investment.

Relations among the Gulf states are also becoming strained as Florida - which has never allowed drilling off its coast - faces the impact of a blowout off Louisiana, where politicians have steadfastly supported the industry.

Congressional Republicans - and some Gulf Coast Democrats - are also calling for an end to the moratorium. And they will use the oil companies' appearance this week to attempt to cast a better light on safety practices in the offshore.

While the other executives are unlikely to criticize BP directly, they are looking to contrast their practice with the evidence of mistakes made on BP's Macondo well. Chevron Corp., for example, used an appearance at a Canadian Senate hearing last week to outline its rigorous safety and training practices, including a corporate culture that encourages any employee on the rig to stop the drilling when they spot a potential safety hazard.

Mr. Obama remains under pressure from his own Democratic base, which opposed his move prior to the blowout to open up more of the U.S. offshore to oil production. His administration has also faced criticism for failing to move more quickly to tighten the reins at the Minerals Management Service, the federal regulatory body that approved BP's drilling plans.

Industry supporters fear the Democratic administration will impose "regulatory overkill" as Mr. Obama and his supporters in the Congress face a backlash from their supporters.

"Politics and energy don't mix - it's like water and oil," said John Hofmeister, former president of Shell's U.S. operations and founder of public interest group, Citizens for Affordable Energy.

"We're now seeing the politicization of this disaster in ways that can only be harmful for the industry and ultimately, the American consumers."

Industry critics are hopeful that Congress will use the opportunity to pass legislation now before the Senate that would encourage alternatives to petroleum use in transportation.

BP reports it is capturing roughly 15,000 barrels a day from the blowout, but the estimates of volume of crude escaping continue to climb, with the U.S. Coast Guard saying it is as much as 40,000 barrels a day.

The U.S. Coast Guard ordered the company to improve its recovery system by bringing more personnel and equipment into the effort. BP plans this week to connect additional tubing and a manifold system that was used in its unsuccessful "top kill" effort, which would increase its capture rate to as much as 28,000 barrels a day.

But it will take another month for the company to install a more robust, hurricane-resistant system that would be capable of capturing nearly all the oil that is gushing from the destroyed well, which lies some 65 kilometres from the Louisiana coast in 5,000 metres of water.

The Obama administration and members of Congress are continuing to put pressure on BP over its promise to cover the cost of the cleanup, and to set aside resources to ensure its obligations are met.

The company is scheduled to pay out its first-quarter dividend next week, and the prospect of BP sending more than $3-billion (U.S.) to its shareholders while its blowout-related liabilities remain uncertain is certain to draw heat when Mr. Hayward appears at a Congressional committee later in the week, after his competitors have had their turn.

The U.S. Justice Department has warned it is prepared to take action if BP carries on with its plan to pay dividends, though it is not clear whether the department was referring to the first-quarter payment, which goes out June 21, and the second-quarter one, on which the company must still decide.

As well, the administration has said it expects BP to pay for workers who are laid off as a result of the moratorium, a demand that BP officials have resisted.

In a recent report, UBS analysts said BP must begin to define what it considers to be "legitimate" costs that it is prepared to shoulder from the spill, though to do so would clearly pour gasoline on the political fire that now threatens to engulf the company.

"Investors remain concerned over the boundaries around BP's commitment to pay all legitimate claim," UBS analyst Jon Rigby wrote.

 

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