During his Oval Office speech last night, President Barack Obama told the American people that he would be meeting with the chairman of BP on Wednesday and that Obama would “inform him that he is to set aside whatever resources are required to compensate the workers and business owners who have been harmed as a result of his company’s recklessness.” In a speech many critics panned as too weak in the face of the growing oil spill, it was one moment when Obama seemed tough and in command.
Apparently he had reason: White House officials and BP executives have tentatively agreed that the energy company will set up a fund worth about $20 billion over the next several years to compensate residents and businesses in the Gulf of Mexico affected by the oil spill. The escrow account will be independently administered by Kenneth Feinberg, the lawyer who ran the compensation fund for victims of the Sept. 11 attacks, which the BP fund may be modeled on. Feinberg was also the government’s special master for executive pay under the Troubled Asset Relief Program (TARP).
The establishment of the independent fund at least gives Obama a clear political win after weeks of struggles against the oil spill, and gives some substance to the promise the President made last night to build back the battered Gulf region over the long term. For BP, which had earlier seemed lukewarm on the idea of an escrow, the $20 billion fund might at least give them some certainty on the company’s costs from the spill going forward. But it’s still an unprecedented figure—the company made about $14 billion in 2009—and significantly higher than what some analysts have been expecting the spill would finally cost the company. And the details would still need to be worked out. Dozens of lawsuits have already been filed against BP in the Gulf region, and the government has opened a criminal investigation into the Deepwater Horizon accident, which could very well result in charges being filed against BP. And with the leak ongoing—and worse then we’d known—the war between BP and Washington isn’t over by any stretch. It’s worth remembering that legal battles in the Exxon Valdez spill—which now looks like a puddle next to the Gulf disaster—were fought for nearly 20 years. Don’t expect this to be over a whole lot sooner.
Update: This afternoon the President commented briefly on the deal. He emphasized that the $20 billion figure would not be a total cap:
This $20 billion will provide substantial assurance that the claims people and businesses have will be honored. It’s also important to emphasize this is not a cap. The people of the Gulf have my commitment that BP will meet its obligations to them. BP has publicly pledged to make good on the claims that it owes to the people in the Gulf, and so the agreement we reached sets up a financial and legal framework to do it.Another important element is that this $20 billion fund will not be controlled by either BP or by the government. It will be put in a escrow account, administered by an impartial, independent third party. So if you or your business has suffered an economic loss as a result of this spill, you’ll be eligible to file a claim for part of this $20 billion. This fund does not supersede either individuals’ rights or states’ rights to present claims in court. BP will also continue to be liable for the environmental disaster it has caused, and we’re going to continue to work to make sure that they address it.
Obama also said that BP would establish a separate $100 million fund to compensate oil-rig workers affected by the deepwater drilling moratorium—a move they’d resisted earlier. After the meeting BP Chairman Carl-Henric Svanberg announced that as a result, the company would cancel its planned dividend payments—which would have been worth billions—for the first quarter of 2010 and for the forseeable future. Although the announcement didn’t go perfectly—after the meeting, Svanberg had this to say:
We care about the small people. I hear comments sometimes that large oil companies or greedy companies that don’t care, but that is not the case at BP. We care about the small people.
Not the most politic way to put it, though in fairness English is Svanberg’s second language, and as a former semiprofessional ice hockey player—and generally tall guy—maybe we’re all small people to him. One sign that the worst may be over for BP though: the company’s stock price was finally up a bit today.