3rd UPDATE: BP Says It Won't Issue Further Dividends This Year; Agrees To $20B Fund

16th Jun 2010 20:39

(Adds comments from Obama and Hayward, background, BP financial details.) By Jared A. Favole and James Herron Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--BP Plc (BP, BP.LN) said Wednesday it won't issue further dividends this year and agreed to set aside $20 billion to help pay for claims as a result of the Gulf oil disaster. BP Chairman Carl-Henric Svanberg made the dividend disclosure after a meeting with President Barack Obama. In recent days, BP had come under pressure to halt dividend payments as it continued scrambling to halt the Gulf spill, which began 58 days ago. Svanberg said after the meeting that he wanted to apologize to those affected by the oil disaster and reassure them that BP will repair economic and environmental damage done to the Gulf region. He said the company wouldn't pay further dividends this year. The U.K.-based oil company said Wednesday it is able to generate $30 billion in cash flow from its global operations above and beyond the Gulf oil spill costs. BP also said it has more than $10 billion of committed bank facilities and its debt ratio remains at the bottom end of a 20% to 30% band, which is lower than most companies. BP's comments appeared designed to reassure investors it's cash-rich and its debt levels are manageable. BP said it will create the $20 billion claims fund over the next three and a half years. BP will pay $3 billion into the fund in the third quarter of this year, and another $2 billion in the fourth quarter. These will be followed by payments of $1.25 billion per quarter until the $20 billion has been paid in, BP said. The fund will be available to satisfy legitimate claims including natural resource damages and state and local response costs. Fines and penalties will be excluded from the fund and paid separately, BP said. BP shares rose on disclosure. The company said it will decide whether to restart dividends in 2011 and added it is "right and prudent" to cancel payouts this year. "We regret the cancellation and suspension of the dividends, but we concluded it was in the best interests of the company and its shareholders," Svanberg said. BP's board will consider resumption of dividend payments in 2011. BP also said it will increase planned asset sales to $10 billion in the next 12 months and will undertake a "significant reduction" in organic capital expenditures. Saying BP will look after the people of the Gulf coast, Svanberg said he wanted to apologize to those affected by an oil disaster he acknowledged should have never happened. He said the company would conduct its own probe of what caused the catastrophe. Chief Executive Tony Hayward said the agreement was more proof of BP's commitment to "do the right thing." "The President made it clear and we agree that our top priority is to contain the spill, clean up the oil and mitigate the damage to the Gulf coast community," he said, referring to executives' meeting with Obama. "We will not rest until the job is done." Obama called the meeting "constructive" and said BP voluntarily agreed to set aside an additional $100 million for workers who lost their jobs as a result of a deep-water drilling moratorium imposed by Obama. Obama said the $20 billion is not a cap, and added that BP will pay the full costs of the clean up including environmental damage. Obama said "BP is a strong and viable company and it is in all of our interests that it remains so." Concerns had been raised about whether BP, whose stock price has been battered since the April 20 explosion, could bear the full costs of the spill. Obama said he emphasized that for the people hurt by the spill it's not just a "matter of dollars and cents." He said the Gulf region has suffered a host of set backs in recent years from Hurricanes Rita and Katrina to the recent nationwide economic downturn. The meeting follows Obama's debut speech from the Oval Office Tuesday night, where he accused BP of operating with "recklessness." He also characterized the disaster as an epidemic that the nation will be "fighting for months and even years." The meeting comes as the size of the spill was again revised upward, as the latest government figures released Tuesday estimate 35,000 to 60,000 barrels is gushing from the mile-deep well in the Gulf daily. The rate of oil spewing out daily was originally estimated in April at 1,000 barrels and has been updated several times. -By Jared A. Favole and James Herron, Dow Jones Newswires; 202.862.9256; [email protected] (Joan Solsman contributed to this story.) (END) Dow Jones Newswires June 16, 2010 15:39 ET (19:39 GMT)