HEARD ON THE STREET: BP Caves, Constructively

16th Jun 2010 23:10

By Liam Denning A DOW JONES COLUMN Both President Barack Obama and BP Chairman Carl-Henric Svanberg described Wednesday's summit as "constructive." It would be interesting to know exactly how Svanberg defines that word. The president certainly got what he wanted. BP suspended dividend payments and committed to put $20 billion into an independently managed disaster fund. It also volunteered $100 million to pay oil-sector workers idled by the government's deep-water drilling moratorium. For BP, there are some crumbs of comfort. Rather than contributing $20 billion to the escrow fund upfront, BP will spread payments over 3 1/2 years. Meanwhile, Obama's expressed desire that BP remain "viable" suggests political pressure is easing. In reality, BP has caved. Jeff Porter, head of environmental law at legal firm Mintz Levin, says he saw no requirement under any law to set this money aside. The $20 billion figure doesn't represent a cap on liabilities and appears to have been plucked from thin air. Moreover, the appointment of an outside administrator clouds the issue of who controls payments from the fund. BP's suspension of dividends, along with announced cuts to capital expenditure and a $10 billion asset-disposal program, presents a further quandary. Yes, these measures conserve cash. But they also hurt growth prospects and most analysts believe BP didn't need to take such steps to cover disaster-related costs, anyway. If the quid pro quo for all this is, say, assurance that BP's U.S. operating licenses won't be revoked, $20 billion over several years might seem cheap. But who knows? The inherent danger of appeasing political demands is that you can't be sure what you are buying. -By Liam Denning; The Wall Street Journal; [email protected] (TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at [email protected]. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.) (END) Dow Jones Newswires June 16, 2010 18:10 ET (22:10 GMT)