A chastened BP PLC is temporarily halting its rich dividend and creating a $20-billion (U.S.) fund to pay the rapidly escalating price tag of the worst environmental disaster in U.S. history.
The surprise commitment comes in the face of intense pressure from U.S. President Barack Obama and new estimates showing that a lot more crude than thought is spewing out of the company's ruptured well in the Gulf of Mexico.
The agreement, finalized Wednesday at a White House meeting with top BP executives, marks an about-face for a company that just a week ago insisted its dividend was safe.
After struggling to show he's on top of the crisis, Mr. Obama can now say he successfully prodded a corporate polluter to put some cash behind its pledge to pay all legitimate claims from angry Gulf residents. But the money, to be independently administered, is neither a ceiling nor a floor. And it doesn't mean BP will pay for everything the government wants because the company reserves the right to dispute compensation claims.
The creation of the fund will ensure the Gulf "is made whole again," Mr. Obama told reporters. The money will pay for ongoing cleanup efforts and compensate thousands of businesses and individuals who've suffered losses.
"I'm absolutely confident BP will be able to meet its obligations to the Gulf Coast and to the American people," Mr. Obama said. "BP is a strong and viable company, and it is in all of our interests that it remains so."
BP, whose stock jumped 1.4 per cent on news of the suspended dividend, also agreed to pay $100-million to cover wages of thousands of oil-rig workers who lost their jobs after the government ordered the shutdown of all deep offshore drilling. The company had earlier argued it wasn't responsible for compensating the victims of a federal decision.
Emerging from a nearly four-hour meeting, BP chairman Carl-Henric Svanberg apologized to Americans for an accident he insisted should never have happened.
"We will look after the people affected, and we will repair the damage to this region - the environmental damage to this region and to the economy," Mr. Svanberg said in his first public comments since the April 20 spill.
He acknowledged the company would be judged by its actions, not his words. "This administration and our company are fully aligned in our interest of closing this well, cleaning the beaches, and care for those that are affected," said Mr. Svanberg, 58, a former semi-pro hockey player from Sweden and one-time chief executive of telecom giant Ericsson.
On Thursday, BP CEO Tony Hayward will be on the hot seat when he appears before a Congressional committee investigating the explosion and sinking of the Deepwater Horizon rig.
"I expect him to be sliced and diced," said Representative Bart Stupak, D-Mich., chairman of the subcommittee.
Mr. Hayward is expected to tell Congress he is "personally devastated" by the Gulf drilling rig explosion and oil spill and understands the anger Americans feel toward him and his company.
"My sadness has only grown as the disaster continues," he is expected say in testimony to be delivered to a House panel Thursday. A copy of Mr. Hayward's testimony was obtained Wednesday by The Associated Press.
Two troubling questions still surround BP's pledge: Is $20-billion enough and how much can the company afford to pay?
Both Mr. Obama and Mr. Svanberg insisted $20-billion is not a cap on the company's liabilities. Nor does it cover possible fines and penalties, which could run into the multibillions.
BP has already spent about $1.6-billion cleaning up the spill. But with the well still leaking as much as 60,000 barrels of oil a day - based on the latest government estimates - it's hard to predict what the final tally might be.
The growing slick from the blowout of the Deepwater Horizon rig already covers a large swath of the northern Gulf of Mexico. And crude is washing up on hundreds of kilometres of shoreline in Louisiana, Mississippi, Alabama and Florida.
BP's final bill for the cleanup and other liabilities could reach $40-billion, analysts at Standard Chartered PLC estimated last week. Some analysts said the final bill could go even higher.
In addition to the direct costs of the cleanup, BP could face federal pollution fines of up to $258-million a day, or nearly $15-billion so far.
The 1989 Exxon Valdez oil tanker spill, which was one-eighth the size of the BP spill, cost ExxonMobil about $4-billion in cleanup costs and legal damages.
Also unclear is what BP can afford to pay and still stay in business. The company is expected to generate $35-billion in cash this year, and until Wednesday's dividend suspension, was paying back $10.5-billion of that to investors.
If the liabilities don't rise above $20-billion (U.S.), BP, Britain's biggest company, would barely suffer a dent. If it greatly exceeds that level, BP could suffer hugely, all the more so if the U.S. Justice Department investigation into the spill results in criminal negligence charges. Matt Simmons, the Texas energy banker and author, has said lawsuits, cleanup costs and other expenses could bleed BP dry. Several commentators and oil-industry insiders think BP might have to seek a Chapter 11 bankruptcy filing to avoid a liquidity crisis.
Mr. Obama insisted Wednesday he wants BP to stay healthy enough to pay for the damage it has caused.
"They don't want to kill the industry," said Jackie Sheppard, a Canadian lawyer and former executive vice-president and legal director of Talisman Energy Inc. "And they don't want to kill BP. They just want to hurt it."
Jim Buckee, Talisman's former CEO, has a similar view. "BP won't get slaughtered unless gross negligence is proved," he said.
In a statement, BP said it would not pay a dividend for the rest of the year - a move that will save the company $2.5-billion per quarter. The company also said it would cut planned capital expenditures and speed up some asset sales.
BP will finance the fund, first by pledging a portion of its U.S. assets, and then through quarterly cash instalments starting later this year. The company remains financially sound, generating cash of more than $30-billion a year and with bank lines of credit totalling $10-billion.
The company said it would revisit its dividend in 2011.
Eric Reguly