Under pressure, BP commits $20 billion to the Gulf

What happened

Under strong pressure from Congress and the White House, embattled BP officials agreed this week to create a $20 billion fund over four years to compensate Gulf Coast businesses and workers for damages resulting from the worst oil spill in U.S. history. The escrow fund will be managed independently by Kenneth Feinberg, the mediator who oversaw the 9/11 victims’ compensation fund. After an arm-twisting meeting with BP Chairman Carl-Henric Svanberg and CEO Tony Hayward at the White House, Obama called the fund “an important step toward making the people of the Gulf Coast whole again,” while Svanberg said, “He’s frustrated because he cares about the small people and we care about the small people.” BP had profits of $17 billion in 2009, but its stock price has dropped 50 percent—a loss of $80 billion in value—since the crisis began, and the company’s total liability for damages, lawsuits, fines, and cleanup costs is now estimated at $17 billion to $60 billion. Some analysts wondered if BP, the world’s third-largest oil company, might declare bankruptcy. “There isn’t enough money in the world to clean up the Gulf,” said oil industry analyst Matt Simmons.

Government scientists this week drastically raised their estimate of how much oil is leaking, gauging its flow at up to 60,000 barrels—2.5 million gallons—daily. BP said its containment cap is collecting roughly 15,000 barrels a day. With polls showing growing public frustration over the lack of progress in plugging the well, the president told Svanberg and Hayward that he expects the portion of oil captured to rise to 90 percent in coming weeks. He used his first Oval Office speech to call, again, for an end to America’s “century-long addiction to fossil fuels.”

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What the editorials said

First an environmental disaster, and now the Obama administration is creating a “disaster for the rule of law,” said The Wall Street Journal. In addition to demanding the new escrow fund, Obama bullied BP into suspending its dividend to shareholders, which will hurt thousands of investors and retirees. Meantime, congressional Democrats are seeking to retroactively lift a $75 million liability cap on BP in order to squeeze more money from the company—“another move of dubious legality.” Doesn’t Washington understand that “punishment by bankruptcy” will not help victims on the Gulf?

In his Oval Office speech, the president vowed to “fight this spill with everything we’ve got,” and to “make BP pay for the damage their company has caused,” said The New York Times. His resolve to take charge of this disaster was nice to hear, but it came nearly two months late. To hold the company accountable, and prevent future disasters, “will require determined, indeed relentless, follow-up.”

What the columnists said

“There should be no doubting BP’s intention to pay legitimate claims,” said Chris Hughes in Reuters.com. But the “big risk with setting money aside upfront, even into an independently supervised account, is that BP shareholders’ funds end up covering spurious claims.” Watch out when lawyers smell that $20 billion.

“Don’t be surprised if you now see Obama and the Democrats ease up” on demonizing BP, said Daniel Foster in National Review Online. They’ll need BP to back their plan to impose new carbon taxes and pursue alternative energy sources. Like it or not, said Steven Pearlstein in The Washington Post, Obama and BP are “in this mess together.” Rage and recrimination aren’t “going to plug the leak or clean up the marshes.” Only BP’s technology and resources can do that. For the good of the Gulf, the White House needs a healthy relationship with Hayward. “This needs to be the Barack and Tony Show, not the Barack and Tony Showdown.”

In the long term, though, what the White House needs is a new energy policy, said Barbara Kiviat in Time.com. We’ve known for decades that we must look for alternatives to oil, and the most obvious—and unpopular—way to wean us from our addiction is a tax on gasoline. “Why aren’t more of our leaders, like the president, pushing the idea? I’m guessing it has something to do with midterm elections.”