Obama May Get Boost From Pressing BP to Set Up Fund (Update1)
By Nicholas Johnston and Hans Nichols
June 17 (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 and businesses 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.”
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.
Words ‘Not Enough’
“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 jumped as much 9.7 percent, the biggest intraday gain since November 2008, and traded at 361.25 pence as of 10:22 a.m. in London.
The company’s American depositary receipts were up 45 cents to $31.85 in New York trading, after earlier touching $33. The shares are down 47 percent since April 20 in what Fadel Gheit, a New York-based analyst at Oppenheimer & Co., called “panic selling.” Gheit upgraded BP to “outperform” from “market perform” on May 27.
BP’s $750 million of 1.55 percent notes due 2011 rose 2.25 cents to 94.5 cents on the dollar, after tumbling as low as 87.9 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The cost of protecting BP’s debt against default for one year fell 461.5 basis points to 535.5, after climbing as high as 1,075 yesterday, CMA DataVision prices show.
‘Calming Effect’
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 continuing environmental crisis, said Charlie Cook, publisher of the independent Cook Political Report in Washington. A USA Today/Gallup Poll released June 15 showed 71 percent of adults polled said Obama hasn’t been tough enough on BP.
“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.”
BP’s Obligations
After a four-hour White House meeting 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.
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.
Exxon Valdez
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, according to statistics from the American Petroleum Institute.
The 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.
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