BP to Place $20B in Escrow for Oil Spill

BP agrees to government demand for a $20 billion escrow account to cover oil spill damages.
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(BP article updated for President Obama's comments and the BP dividend suspension plan.)

WASHINGTON D.C. (

TheStreet

) --

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has agreed to place $20 billion in an escrow account to cover damage claims from the Gulf of Mexico oil spill.

BP top brass, including Chairman Carl-Henric Svanberg, CEO Tony Hayward, BP America president Lamar McKay and Bob Dudley, the BP managing director, who is heading its oil spill response team, met with President Obama and White House staff and agreed to the escrow plan at 10 a.m. Wednesday morning meeting on plans to pay oil spill claims.

BP Chief Executive Officer Tony Hayward, left, BP America Chairman Lamar McKay, center, BP Chairman Carl-Henric Svanberg, second from right, and other BP representatives arrive at the White House Wednesday for a meeting with President Barack Obama

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chairman Carl-Henric Svanberg also announced shortly after his meeting with President Obama that BP will pay no more dividends this year, beginning with next week's June 21 dividend.

President Obama said at a press briefing at 2:30 p.m. on Wednesday that

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had agreed to a $20 billion escrow account to be administered by an independent agency run by 9/11 claims fund chief Kenneth Feinberg.

President Obama said that the meeting with BP officials covered two issues: containment of oil still spewing into the Gulf and the payment claims process.

The President stressed that BP made the decision to put the $20 billion in escrow voluntarily, but that BP liability resulting from the oil spill would not be limited to the $20 billion cap. Additionally, people and businesses making claims on the escrow fund are still entitled to pursue other legal action related to economic losses from the BP oil spill.

The President announced that BP had also agreed to set up a $100 million fund for oil sector workers that lost their jobs due to the federal moratorium on new drilling in the Gulf of Mexico.

Obama stressed that the fund will not be controlled by BP or the government.

"BP liability for the spill is significant and they acknowledge that, and we will continue to hold BP and all the other responsible parties accountable," the President said.

The President also spoke of BP's financial strength to stifle fears that the government wanted to pound BP into a position of weakness that might ultimately hurt the residents and individuals in the Gulf the most, if BP could not pay claims. "I am confident BP can meet its liability. BP is a strong and viable company and it is in all of our interest that it remains so. This is about accountability," President Obama said.

Of ongoing efforts to contain the oil spill, the President repeated his comment from the Tuesday evening Oval Office speech that in the coming weeks BP should be able to capture 90% of the oil leaking from its underwater well. However, "it's not good enough," President Obama said, adding the government would continue to keep the pressure on BP.

The White House has been pressing for BP to set aside billions in an escrow account and have an independent agency administer the payment process. Democratic Senators had been pressing for the $20 billion escrow amount.

The New York Times

first reported that BP had agreed to the $20 billion fund ahead of President Obama's remarks expected in the Rose Garden.

It was not clear how BP would pay into the fund to manage its cash flow, and BP CFO Byron Grote was scheduled to hold a press conference with investors at 3 p.m. ET on Wednesday.

On Tuesday night, President Obama called BP's behavior reckless in his speech from the Oval Office on Tuesday evening, and reiterated the government assurance that BP would be made to pay all claims resulting from the oil spill. President Obama's speech, though, was less about BP and more about the long-term rebuilding of the Gulf coast, and the need for the U.S. to enact comprehensive energy policy.

President Obama tapped former Mississippi Gov. Ray Mabus to develop a long-term Gulf Coast Restoration Plan -- to be funded by BP -- in concert with local states, communities, fishermen, conservationists and residents.

The White House has drawn a line in the sand over payment of damage claims by BP: either set up an independent entity to get the job done, or the government will take control of the claims process. "I think everyone agrees that we have to get BP out of the claims processes," White House spokesman Robert Gibbs said on Tuesday morning.

BP Fire Sale

BP Fire Sale: Global Assets on the Block?

Political pressure on the BP claims process first intensified over the weekend, with President Obama demanding an escrow account be created by BP to reserve billions of dollars for the Gulf coast residents and businesses with damages from the BP oil spill.

Making the rounds on political talk shows Sunday morning, White House adviser David Axelrod said, "We want to make sure the money is escrowed for the businesses and want to make sure the money is independently administered so it's not slow-walked."

Fifty-four Democratic Senators want BP put forth the initial proposal for a $20 billion payment into an independently managed account to cover oil spill clean-up and damages.

BP shares, which slumped by as much as 5% early in trading on Wednesday, but were rallying, up by 3% after the announcement from BP and President Obama.

BP Oil Spill Update

BP Oil Spill Update: Obama Says BP Will Pay

-- Reported by Eric Rosenbaum in New York.

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