BP p.l.c. (NYSE: BP) gave up the last ace it had in the hole, agreeing to set up a $20 billion escrow account which will be used to compensate the people and businesses harmed by the Gulf oil spill. The cash will also go towards clean-up efforts and it is costing the firm’s shareholders their dividend for a year.
It is not likely that the public will ever know what happened in a White House meeting between Obama and BP management and attorneys. Obama may have threatened to shut down all BP drilling in the US. He may have threatened a federal suit against the UK-based oil company for recklessly endangering the environment by failing to monitor the work on the Deepwater Horizon rig.
Whatever leverage the Administration used, BP did what it ought not to have – it took money from its shareholders and put it in the hands of the independent body that will manage the escrow.In the process, BP has admitted its liability beyond its earlier promises to clean-up the Gulf and cover reasonable cost to people and states who were hurt by the event. BP might have told the White House that it would run the fund on its own and pledged that it would pay as much money as necessary to handle claims which might end up being well over $20 billion… or well under.
The independent board which will run the escrow may use the cash for purposes that BP has already rejected such as paying workers on deepwater rigs that will be shuttered by a moratorium on Gulf drilling
BP has left itself at the mercy of the American government. It is almost certain that it received no assurances about capping future damages in exchange for the $20 billion. It is clear that the capital will not be available to help pay BP’s dividend. The company, for whatever reason, barely put up a fight.
Douglas A. McIntyre