Obama administration releases fund agreement with BP in Gulf oil spill


WASHINGTON — The Obama administration today released a 40-page agreement with BP that requires the company to set aside revenue from its U.S. oil and natural gas production as collateral for a $20 billion fund to pay victims of the massive Gulf oil spill.

The document makes it clear that the fines the administration plans to assess against BP can’t be paid from that account.

It says the fund, for which BP made its first $3 billion deposit Monday, will be used to pay claims adjudicated by Kenneth Feinberg, the administrator of the Gulf Coast Claims Facility. It also will be tapped to cover natural resource damage costs and state and local response reimbursement.

Environmental groups quickly raised objections about using BP oil and gas production as collateral.

David Pettit of the Natural Resources Defense Council said that while those depending on the fund need BP “to remain solvent,” the dependence on continued BP drilling operations “casts a shadow on the legitimacy of future regulatory authority.”

Associate U.S. Attorney General Tom Perrelli, who helped negotiate the deal, earlier this week said demanding collateral from BP was important to “ensure that the necessary” funds will be available should the oil giant run into financial problems.

The escrow agreement released Wednesday details the responsibility of BP and two trustees who will oversee the distribution of money from the company to Feinberg.

“It was clearly written by a room full of lawyers,” said Mitchell Crusto, who teaches business law at Loyola University Law School.

The administration has said the fund amount is not a ceiling and that the company could be required to pay more depending on the size of compensation awards.

Still, Rep. Steve Scalise, R-Jefferson, raised concerns that the escrow account could be quickly diminished by payouts to help restore natural resources damaged by the spill.

“While BP should absolutely pay these costs to restore our valuable natural resources they should make those payments separate from this fund which is intended to compensate Gulf Coast families and small businesses impacted by this disaster,” Scalise said.

The use of the fund to restore environmental damage was laid out from the first day the Obama administration announced its agreement with BP on June 16.

An administration fact sheet said the fund would be used to pay for natural resource damage costs, claims adjudicated by the head of the Gulf Coast Claims Facility, state and local response costs, as well as any judgments and settlements reached with those who decide to bypass the Claims Facility and file damage claims with the courts.

Crusto, the Loyola law professor, said he found no specific mention in the escrow agreement of whether payments from the fund could be used to finance damages imposed by the courts or in out-of-court negotiated settlements, just one of a “number of questions” left unanswered.

White House spokesman Robert Gibbs said that the escrow documents call for BP to pay $5 billion before the end of this year and then $5 billion each in 2011, 2012 and 2013, for a total of $20 billion.

Crusto said the agreement to make the payment over four years will help BP with its cash flow, and might help reassure investors.

Feinberg is expected to announce next week the process by which people and businesses impacted by the spill can apply for payments to cover their losses.

Gibbs, during his White House briefing, said that President Barack Obama, who will be making a one-day vacation stop Saturday at Panama Beach, Fla., plans to meet with business leaders, and will be accompanied by Ray Mabus, the Navy secretary who is developing a coastal restoration plan for the Gulf. Gibbs said the president wants the visit to help make the point that Gulf beach communities and resorts are open for business.

“Even as the president talks about what our next steps are in our response, obviously part of this will be highlighting the tremendous economic toll that has taken place, as I said, even on places that didn’t necessarily see a large amount of oil wash up,” Gibbs said.

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
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