3rd UPDATE: Senate Democrats To BP: Set Aside $20B For Spill

14th Jun 2010 22:31

(Adds Obama comments; analysis from accounting professor, more background in the second and third through seventh paragraphs.) By Siobhan Hughes Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--U.S. Senate Majority Leader Harry Reid (D., Nev.) and members of the Democratic caucus on Monday asked BP PLC (BP, BP.LN) to set aside $20 billion in a special account to be used to pay for economic damages and clean-up costs of an ongoing oil spill in the Gulf Coast. The lawmakers made the request in a letter to BP Chief Executive Tony Hayward and asked for a response by no later than Friday. The letter comes as U.S. President Barack Obama is preparing to ask BP to set up an independently administered fund for reimbursing victims. Obama meets with BP Chairman Carl-Henric Svanberg on Wednesday. BP had $8.34 billion in cash on hand at the end of 2009, regulatory filings show, and would have to borrow money were it obligated to come up with $20 billion at once, according to Charles Mulford, an accounting professor at Georgia Tech. "They may not have cash on hand, but they do have the ability to borrow it," he said. "I don't see a liquidity crisis arising as a result." The question for observers is whether BP will seek to retain some control over how the money is spent or whether it will negotiate with the administration over the types of liability it must pay. One possible area for negotiations involves the penalties associated with each barrel of oil spilled into the Gulf. If a court finds that the spill was a result of gross negligence by BP, penalties could be as high as $4,300 a barrel. BP has a reason to hold down those penalties, since if the leak lasts for at least 90 days, those penalties alone could be between $7.7 billion and $15.5 billion, based on a Dow Jones Newswires analysis. The analysis is based on the most recent estimates by a group of government-led scientists that the quantity of oil leaking out of the broken pipe was 20,000 barrels to 40,000 barrels a day. Obama said on Monday at a press conference in Alabama that his administration has begun "preliminary conversations" with BP about setting up a "mechanism" to ensure that legitimate claims stemming from an ongoing oil spill in the Gulf of Mexico are "dealt with justly, fairly, promptly." He said that "my hope is that by the time the chairman and I meet on Wednesday that we've made sufficient progress that we can start actually seeing the structure that would be in place." In a call with reporters, Sen. Patty Murray (D., Wash.) and Sen. Robert Menendez (D., N.J.) said that the letter wasn't intended to set a limit on the payouts BP would make in connection with the spill, which followed an April 20 explosion of a drilling rig that BP was leasing in the Gulf of Mexico. The money "is an attempt" to make sure that commercial fishermen, tourism-related businesses and others in the gulf who have "immediate claims" will be "held whole," Menendez said. He added that "while I think the $20 billion is incredibly important as a very significant down payment towards the claims of individuals," he said that "I just don't want to limit that liability to that." Menendez said alternative legislation introduced by Louisiana Republican Sen. David Vitter to address the liability question would almost certainly be challenged in court and found to be unconstitutional. Vitter's bill would remove the liability cap only for BP, and only for the current crisis. Menendez said it was unconstitutional for Congress to attempt to pass a law affecting only one company. -By Siobhan Hughes, Dow Jones Newswires; 202-862-6654; [email protected] (Corey Boles contributed to this article.) (END) Dow Jones Newswires June 14, 2010 17:31 ET (21:31 GMT)