BP cancels dividend, sets up $20bn fund

17th Jun 2010 06:59

BP shares have rallied 8% after the oil giant cancelled dividends for the rest of the year and agreed to a demand from US president Obama to put $20bn in an escrow account to cover claims resulting from the oil spill in the Gulf of Mexico. The UK company will pay $3bn into the escrow account in the third quarter of 2010 and $2bn in the fourth quarter. This will by followed by payments of $1.25bn a quarter until a total of $20bn has been reached.The fund will be used to 'satisfy legitimate claims including natural resource damages and state and local response costs,' BP said. Fines and penalties will be excluded from the fund and paid separately. The $20bn to be put into escrow does not represent a cap on how much it could have to pay. BP has cancelled the previously declared first quarter dividend scheduled for payment on 21st June and said that no dividends will be declared for the second and third quarters of 2010. However, it will consider resuming payouts in 2011 when fourth quarter 2010 results are issued 'by which time it [the board] expects to have a clearer picture of the longer term impact of the Deepwater Horizon incident.The $20bn fund will be met by setting aside US assets with a value of $20bn, BP said. 'The intention is that this level of assets will decline as cash contributions are made to the fund,' it said.News of the dividend cancellation and escrow account came after a meeting between BP executives and the US government to discuss how to clean up the oil spillage, which is thought to be leaking at a rate of about 60,000 barrels a day. The escrow fund will be overseen by lawyer Kenneth Feinberg, who was in charge of payments to victims of the September 11 terror attacks. "I would like to apologise to the American people on behalf of all the employees of BP. We hope we will regain the trust you had in us," BP chairman Carl-Henric Svanberg said in a statement from outside the White House. In a statement today, BP chief executive Tony Hayward, who faces a grilling from Congress today, said: 'From the outset we have said that we fully accepted our obligations as a responsible party; this agreement reaffirms our commitment to do the right thing.'