Posted on 16 Jun 2010
Summoned by President Obama, the top executives of BP, arrived atto the White House Wednesday morning to discuss the president's demand that the company set aside billions of dollars in an independently administered escrow account to pay claims stemming from the Gulf of Mexico oil spill disaster.
The chairman of BP's board, Carl-Henric Svanberg, will be told at the meeting "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," the president said in a televised address about the spill Tuesday evening.
The president is expected to speak to reporters around midday in the Rose Garden concerning the results of the meeting with the delegation of BP executives, which also included the company’s chief executive, Tony Hayward.
Lawyers at the White House and for BP have been negotiating for days about an escrow account. While Mr. Obama has not put a figure on the account, Senate Democrats have called for $20 billion.
“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 from London in a statement released after the president’s speech, adding that the company looked forward to “a constructive discussion about how best to achieve these mutual goals.”
On Thursday morning, BP said it would “keep the market fully informed” about developments from the meeting.In his speech, President Obama called Americans to join a “national mission” to move away from reliance on oil and develop alternative sources of energy, and said the environmental disaster made it imperative for Congress to act quickly to overcome “a lack of political courage and candor.”
Speaking to a national television audience for the first time from the Oval Office, Mr. Obama also promised a long-term plan to make sure that the gulf states suffering from the oil spill are made whole again. He said he was appointing Ray Mabus, the secretary of the Navy and the former governor of Mississippi, to develop a Gulf Coast restoration plan in cooperation with states, local communities, tribes, fishermen, conservationists and gulf residents.
Even as Mr. Obama was preparing his speech, the government on Tuesday released a new, much higher estimate of the amount of oil still flowing from the well, almost two months after an explosion and fire destroyed the drilling rig that was preparing it for production. The new estimate said that as much as 60,000 barrels of crude could now be spewing into the Gulf of Mexico each day, a sharp increase over the estimate last week of 25,000 to 30,000 barrels a day.
The new estimate, reflecting the increased oil flow that began after a pipe was deliberately cut to help capture some of the oil coming from the well, continues a pattern in which every new estimate has been sharply higher than the one before. With BP recapturing roughly 15,000 barrels a day through an improvised containment cap and siphon placed over the well after a number of false starts, the new estimate suggests that as much as 45,000 barrels a day is escaping into the gulf, punctuating the scale of the substantive and political problems facing Mr. Obama.
Seizing on the widening calamity in the Gulf of Mexico to push for legislation he has advocated since his campaign, Mr. Obama said he was willing to look at approaches from Republicans as well as Democrats, including raising efficiency standards for buildings as well as cars and trucks.
He said progress had been blocked time and time again by “oil industry lobbyists,” and he suggested that achieving energy independence was an issue of national security, saying the time has come for the United States to “seize control of our own destiny.”
But, he warned: “The one approach I will not accept is inaction. The one answer I will not settle for is the idea that this challenge is too big and too difficult to meet.”
Administration officials said the speech marked “an inflection point” in the nearly two-month-old crisis: the end of a phase in which BP tried and failed to stop the leak using the quickest available options, and the beginning of the “new reality” that plugging the leak could take months and the cleanup months or even years past that.
The new estimate for the amount of oil spewing from the well is far above the figure of 5,000 barrels a day that the government and BP clung to for weeks after the spill began. It reflects a possible increase in the flow rate that occurred after BP cut an underwater pipe called a riser on June 3 to install a new device to capture part of the oil.
The company has proven in recent days that it can capture roughly 15,000 barrels of oil a day, though the operation was interrupted briefly on Tuesday by a small fire after the Discoverer Enterprise drilling ship was apparently struck by lightning.
BP has outlined plans to deploy new equipment so that it can capture a minimum of 40,000 barrels a day by the end of June, and a minimum of 60,000 barrels a day by mid-July.
If the new range of flow estimates proves correct, and if BP is ultimately found guilty of gross negligence in actions it took that led to the Deepwater Horizon disaster, that would mean the company could be assessed fines of up to $258 million a day. Those fines could come on top of payments for cleanup costs and economic damage to Gulf Coast businesses.
Fearful that the spill could ultimately cost BP tens of billions of dollars, investors have driven the company’s market valuation down by 48 percent since the spill began, erasing $91 billion of shareholder value. BP shares rose more than 2 percent during regular trading on Tuesday, but then gave up all that gain and more in after-hours trading.
Mr. Obama has said all along that BP will pay for everything. People close to BP said that as asset-rich as the global oil giant is, its holdings are not so liquid that it can instantly set aside as many billions of dollars as the White House and leaders in Congress are seeking. Also being worked out are the terms by which BP would have to replenish the fund as it is drawn down.
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.
Though BP has promised to cover all costs of the spill, the president and a number of lawmakers began pushing for the escrow account amid concerns about the company’s ability to meet its obligations over the long haul — or even survive the crisis intact.
To make sure that all claims are paid, the administration had demanded that BP set aside money to pay for future liabilities before paying dividends to shareholders, which now amount to about $10.5 billion a year.
BP, which has spent about more than $1.5 billion on the cleanup so far, has said it expects to be able to pay all spill costs from its regular operating funds. But in response to the government’s requests, BP’s board met earlier this week to consider its options.
While the ultimate cost of the disaster remains uncertain, Wall Street estimates have put the bill for BP at anywhere from $17 billion to $60 billion, including penalties, damages and cleanup costs for the disaster on the Deepwater Horizon platform.
Beyond the financial costs, the multinational oil giant is also facing a growing number of risks that could jeopardize its future. The company is almost certain to face tougher scrutiny from regulators. Opportunities to drill wells may be limited as governments and partners shy away from the company’s tarnished reputation.
At the extreme, revenue could be sharply curtailed if the federal government found that the accident was caused by gross negligence and tried to revoke BP’s right to operate in the United States, which accounts for one-third of the company’s business.
Since the spill began, BP’s shares have lost almost half of their value. Shares trading closed Tuesday at $31.40, down from $60.48 on April 20. Over time, analyst say that a drop in BP’s market value could turn the company into a target for a takeover by Western rivals or even one of Asia’s national oil companies, although questions about the company’s financial liability for the spill would give pause to potential acquirers.
For the moment, however, with oil trading above $75 a barrel, the company has torrents of money flowing in and says it will be able to use that revenue to pay for the cleanup as well as many of the penalties it will face.
Last year, BP operations generated $27.7 billion in cash.
The company operates the biggest oil field in North America — Prudhoe Bay in Alaska’s North Slope. Its refineries in Texas City, Tex., and Whiting, Ind., are among the five largest in the country. Globally, the company had 63 billion barrels of resources at the end of 2009, including more than 18 billion barrels of proven reserves.
Last year, BP had about $26 billion in debt, giving it a debt-to-equity ratio of about 20 percent. The company has said that it could raise that ratio to 30 percent and still have an appropriate level of financial flexibility.
“Our asset base is strong and valuable,” BP said in a statement last week, adding that it had “significant capacity and flexibility in dealing with the cost of responding to the incident, the environmental remediation and the payment of legitimate claims.”