Obama May Get Boost From Pressing BP to Set Up Fund

BP shares rose after Obama announced the escrow accord
U.S. President Barack Obama, right, meets with Carl-Henric Svanberg, chairman of BP Plc, in the Oval Office of the White House. Photographer: Pete Souza/White House via Bloomberg

President Barack Obama scored a political victory by pressuring BP Plc to commit $20 billion for damages from an environmental disaster that’s weighing on his presidency as the company struggles to contain thousands of barrels of oil flowing into the Gulf of Mexico each day.

BP’s agreement yesterday to establish the compensation fund, and the London-based oil company’s decision to temporarily suspend dividends as Gulf residents begin filing claims, gave Obama an opportunity to look like he was directing events instead of reacting to them, said Allan Lichtman, a political history professor at American University in Washington.

“Obama has been behind the curve on the oil spill since its onset,” Lichtman said. “Finally, he may be catching up.”

Even some critics who praised Obama for getting BP’s commitment to multibillion-dollar damage payments say the president’s longer-term outlook depends on how soon BP controls the oil spill and how much crude tars Gulf beaches and marshes.

“You have to give the president credit where credit is due,” Florida Republican Senator George Lemieux said on CNN, lauding the BP escrow account. “He did a good job on that. Now what we have to do is really focus on keeping the oil from coming ashore in the first place.”

Words ‘Not Enough’

BP Chairman Carl-Henric Svanberg, summoned to the White House for meetings yesterday that included a private 25-minute Oval Office session with Obama, apologized for the biggest oil spill in U.S. history and promised the company would take responsibility.

“We made it clear to the president that words are not enough,” Svanberg said. “We understand that we will and we should be judged by our actions.”

BP’s shares soared 6.7 percent to 359.7 pence today in London. The stock has dropped 45 percent since the April 20 explosion of the Deepwater Horizon drilling rig in the Gulf that killed 11 workers and triggered the spill.

BP’s Chief Financial Officer Byron Grote said yesterday in a conference call with investors and analysts that the company’s actions on the dividend and escrow account likely “will create a calming effect” on debt holders.

Obama faces a challenge calming a public distressed by daily reports about the environmental crisis, said Charlie Cook, publisher of the Cook Political Report in Washington. A USA Today/Gallup Poll released June 15 showed 71 percent of adults surveyed said Obama hasn’t been tough enough on BP.

‘Long Slog’

“This is a long slog for the president,” Cook said. White House officials “just have to grit their teeth, try their best and tough it out,” he said. “There is no single thing they can say or do to fix this horrible problem, both the spill and the ensuing political problems.”

The BP accord drew fire from the ranking Republican on the House Energy and Commerce Committee, who said the fund amounted to “a $20 billion shakedown.”

“I’m ashamed of what happened in the White House,” Representative Joe Barton of Texas said today as the energy panel began a hearing on the oil spill. “It is a tragedy of the first proportion that a private corporation can be subjected to what I would characterize as a shakedown.”

Barton spoke in opening statements before testimony to the committee by BP Chief Executive Officer Tony Hayward.

White House press secretary Robert Gibbs called on lawmakers from both parties to “repudiate” Barton’s comments.


“What is shameful is that Joe Barton seems to have more concern for big corporations that caused this disaster than the fishermen, small business owners and communities whose lives have been devastated,” Gibbs said in a statement.

After a four-hour White House meeting yesterday between administration officials and BP executives, Obama said the escrow fund “will provide substantial assurance” that claims will be paid. “The people of the Gulf have my commitment that BP will meet its obligations to them,” Obama said.

Obama’s top energy and climate adviser, Carol Browner, said the fund was a “White House-driven agreement” that doesn’t cap BP’s liability and won’t prevent individuals and businesses from suing the company.

It will be administered by lawyer Kenneth Feinberg, 64, who has overseen executive pay at companies that received federal bailouts and administered the compensation fund for victims of the Sept. 11 terrorist attacks.

Four Trips

Obama has traveled to the Gulf four times since the spill started. After returning from Mississippi, Alabama and Florida on June 15, he said BP would be held responsible for “recklessness” in the Gulf.

BP has spent about $1.6 billion on containing and cleaning up the spill so far. The company’s spending for cleanup and liabilities may reach $40 billion, Standard Chartered Plc estimated last week.

The government has increased its estimate of the oil leak to 35,000 to 60,000 barrels a day.

Based on the low end of the estimate, BP well may have leaked 1.99 million barrels so far, exceeding 262,000 barrels spilled by the Exxon Valdez in 1989 in Alaska, according to statistics from the American Petroleum Institute.

The BP accident prompted Obama to declare a six-month moratorium on deepwater offshore oil drilling and, under the agreement reached yesterday, BP will contribute $100 million to a fund for oil workers who lost jobs because of the action.

Obama said he’s confident the company will be able to pay claims.

“BP is a strong and viable company, and it is in all of our interests that it remain so,” he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE