In his Oval Office address last night, President Obama explained that he would meet today with the chairman of BP at the White House. The president said he 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.”It was an interesting choice of words. Obama didn’t intend to “ask,” he would “inform.” The president wasn’t planning to offer a request; he would offer instructions.
The follow-up question was obvious: what if BP simply refused? Fortunately, it appears Obama was persuasive — just a few hours after sitting down in the Roosevelt Room, a deal came together.
The White House and BP tentatively agreed on Wednesday that the oil giant would create a $20 billion fund to pay claims for the worst oil spill in American history. The fund will be independently run by Kenneth Feinberg, the mediator who oversaw the 9/11 victims compensation fund, according to two people familiar with the deliberations.
The agreement was not final and was still being negotiated when President Obama and his top advisers met Wednesday morning with BP’s top executives and lawyers. The preliminary terms would give BP several years to deposit the full amount into the fund so it could better manage cash flow, maintain its financial viability and not scare off investors.
Note the fund is to be established over two years, through a combination of dividend cuts and reduction in spending. Moreover, a planned dividend payment for June 21 is being halted, which would appear to be a meaningful concession. From Bloomberg:
Svanberg and Chief Executive Officer Tony Hayward agreed to set aside $20 billion over several years to compensate victims of the spill after Obama in an Oval Office address yesterday called for creation of a fund. BP said it will reduce capital expenditure and sell more assets than planned to free up cash.
“The dividend is off the table,” said Alastair Syme, an oil and gas analyst at Nomura Holdings Inc. in London, before the announcement. “Until they have some clarity on the costs of the spill, they can’t do anything.”
BP’s payments accounted for about 14 percent of all dividends in the U.K.’s benchmark FTSE 100 stock index last year. Fitch Ratings yesterday lowered BP’s credit score by six grades to BBB, two levels above junk, on concern costs will escalate.
President Obama deemed the meeting to be “constructive” and stressed that the $20 billion set-asde was not a maximum payout and that BP would be responsible for all costs, including environmental damage. (Hhm, what might the loss of the brown pelican, if it comes to that, be worth?)
The fund will be “independently” administered by Kenneth Feinberg, who was in charge of overseeing executive compensation for the TARP (aside: he has gotten himself in the midst of particularly politicized and thankless tasks. He also administered the process of compensating 9/11 victims). The administration of the fund had been a bone of contention.
The Wall Street Journal reports that BP “voluntarily” agreed to set aside an additional $100 million to compensate Gulf workers idled by the moratorium on deep sea drilling.
Nicole Allen at The Atlantic:
The Exxon Valdez disaster, America’s worst environmental catastrophe before Deepwater Horizon, illustrates some of the complications in paying economic damage claims. After 11 million gallons of oil spilled into Alaska’s Prince William Sound in 1989, locals filed damage claims with the Trans-Alaska Pipeline Liability Fund, which had been established when the pipeline was authorized in 1973. Oil companies operating in the area deposited money in the fund as a form of insurance — a precursor to the Oil Spill Liability Trust Fund, created by the Oil Pollution Act of 1990 (itself prompted by the shock at the Exxon Valdez spill). The fund was authorized to distribute up to $100 million in damages, though according to John. J Gibbons, who administered it, only a fraction of this sum was handed out.
“Whatever they put in place in the Gulf will have to take into account a lot of complexities with respect to the claims process,” Gibbons says.
“For example, an enormous number of vessel owners and crew members who were in the fishing business have been more or less laid up. On the other hand, as the clean-up progresses, those vessels of necessity are going to be hired to participate in the clean-up work — and they’ll get paid,” Gibbons says. “Any claims process with respect to lost fishing income has to take into account that some of them will be making more money cleaning up than they would have made fishing.”
Brian O’Neill, who represented Alaskans who lost income due to the Exxon Valdez spill in their 21-year battle with the courts, also fears the escrow fund could get bogged down in the process of divvying up $20 billion.
Processing a fisherman, hotel owner, or restaurateur’s claim, O’Neill explains, has two phases: “The first thing is, he needs money now or he’s going to go bankrupt, so there’s an interim payment. But secondly, you also need to make a determination of how much business he’s going to lose over time.”
O’Neill cites an example from Exxon Valdez: salmon fishermen took a hit for one to three years but eventually managed to recover some business. Herring fishermen, on the other hand, could never fish again, but they didn’t know this until five or six years later, when the scope of damage to local herring populations was confirmed. Keeping tabs of short-term and long-term damages in very specialized industries involves a lengthy roster of experts on local industries.
“This is going to be a political disaster when someone finally sits down to figure out a structure for how to pay people but then that structure doesn’t start paying people for two or three years,” O’Neill says.
Notwithstanding the fact that BP is agreeing to this — just how voluntary that agreement might be is left for the reader to ponder — one has to wonder where the legal authority for the fund will come from. The 9/11 fund that Mr. Feinberg oversaw was established by an Act of Congress, for example, and there does not appear to be any independent statutory authority for the President to establish this fund on his own.
Also unanswered is the question of what claims will be covered by the fund:
BP officials are adamant that the company should not be liable for the lost wages of oil workers laid off because of the six-month moratorium that the Obama administration imposed on deepwater offshore drilling after the Deepwater Horizon explosion and fire. But Interior Secretary Ken Salazar and other administration officials repeatedly have cited idled oil workers as among those who could press claims.
It may turn out that some claims will have to be litigated before recovery is possible, especially since the idea that BP should be responsible for a losses like the lost wages of oil workers idled by a government-imposed drilling moratorium, which only seem to be tangentially related to the explosion of the Deepwater Horizon.
In any event, this news is likely to be well-received by Gulf Coast residents who have been harmed by the oil spill. What remains to be seen is how it will be implemented.
Daniel Foster at The Corner:
Don’t be surprised if you now see Obama and the Democrats ease up a little on the “BP is the devil” bit. The administration needs BP to sign on to its energy agenda — just like it needed Goldman to check-off on fin-reg and AHIP to green light the ACA, and for similar reasons. The fact is that cap-and-trade was BP’s idea (seriously, it was) and that big, entrenched energy companies stand to benefit most from carbon taxes.
Besides, BP and the Democrats have the same publicist! Stan Greenberg’s consultancy Greenberg Quinlan Rosner is the go-to PR outfit for any Democrat who matters, and was a driving force behind the superficial reinvention of British Petroleum as “Beyond Petroleum” in the early part of the decade.
UPDATE: And now to the Barton situation: Allah Pundit
Josh Marshall at Talking Points Memo
Chris Good at The Atlantic
UPDATE #2: Reihan Salam at Daily Beast
John Cole on Salam
Daniel Larison on Salam
Ann Althouse on Salam
UPDATE #3: Salam responds to Larison
Larison responds to Salam
UPDATE #4: Peter Hannaford at The American Spectator
Jake Sherman at Politico