BP and Obama agree to $20bn clean-up fund for Gulf oil spill

Tentative deal to compensate people and businesses affected by the disaster is struck after long meeting at White House.

BP has agreed in principle to set up a US$20 billion (Dh73.45bn) fund to pay for damage caused by its devastating oil spill in the Gulf of Mexico. The White House and top executives of the British energy group have tentatively agreed that BP will pay the money into an independently controlled fund over a period of years, according to sources close to the oil company.

The fund will be overseen by Kenneth Feinberg, the lawyer who ran the compensation fund for victims of the September 11, 2001 attacks on the US. It will compensate people and businesses harmed by the spill. Barack Obama, the US president, demanded the creation of the fund during his national address about the spill on Tuesday. He met BP executives at the White House yesterday. The preliminary agreement followed days of legal negotiations over the creation of an escrow account.

"We share the president's goal of shutting off the well as quickly as possible, cleaning up the oil and mitigating the impact on the people and environment of the Gulf Coast," BP said in a statement released after the president's speech. BP's shares rose sharply following news of the deal, which assuaged concerns about the company's future. Earlier this week, its share price had dropped to a 13-year low.

During his speech, Mr Obama promised a restoration plan to help states suffering from the oil spill to recover. He appointed Ray Mabus, the secretary of the US Navy and former governor of Mississippi, to develop the plan. On Tuesday, the government said that as much as 60,000 barrels per day (bpd) of crude oil could be leaking into the Gulf of Mexico, more than twice its estimate last week. BP has outlined plans to deploy new equipment to capture at least 40,000 bpd of oil from its damaged deepwater Macondo well by the end of this month and 60,000 bpd by mid-July.

Company officials could not immediately be reached yesterday for comment. Meanwhile, the world's top pension funds are reeling from losses on BP holdings, but one group of investors has emerged relatively unscathed. The Gulf's sovereign wealth funds, with their economies largely reliant on oil revenues, hold few shares in the oil giant. Only the Kuwait Investment Authority (KIA) figures among its top 10 investors.

KIA is among four international government investors in BP to have lost $5bn through the troubled oil company's share price collapse. But other Gulf sovereign investors have escaped exposure to the steep fall in BP's London-traded stock. KIA was the fifth-largest shareholder in BP, holding 328 million shares at the start of last month, according to Bloomberg data. Sovereign wealth funds from Norway, China and Singapore were also among the 12 largest shareholders in the company. "The spill has shown that BP was a higher risk than investors thought," said Peter Hitchens, an oil analyst at Panmure Gordon. "These big sovereign wealth funds take a long-term view and will still want exposure to oil companies due to high-yield curves." Shares in BP have shed value sharply since an explosion sank an oil rig in the Gulf of Mexico on April 20, killing 11 workers. The company has had a torrid time since, as it battles to contain leaking oil while facing growing ire from the US public and politicians over its handling of the clean-up.

Before the spill, BP had attracted a growing number of investors after producing more oil and gas than its rival ExxonMobil last year for the first time. The future prospects for the company looked bright after September, when it made the biggest oil discovery in the US in three years in the Gulf of Mexico. Mr Hitchens said BP was still financially strong and any decision to suspend second-quarter dividend payments would be due to political pressure from the US government, rather than financial insecurity.

Norway's state fund held 336 million shares, or 1.79 per cent of the company, and the People's Bank of China owned a 1.1 per cent stake, according to the Bloomberg data. The Singapore government held a 1.07 per cent stake.

BlackRock was BP's largest shareholder among private fund managers, holding 1.1 billion shares, and Legal & General the second largest with 751 million shares, the latest filing, on December 31, showed.

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