BP (LON:BP.) has agreed to set up a $20bn compensation fund to pay for the damage caused by the Deepwater Horizon oil spill in the Gulf of Mexico and has decided to suspend dividend payments for the rest of the year. At a meeting with US President Barack Obama, the BP board agreed to create and build a $20m claims fund over the next three and half years which will satisfy legitimate claims including natural resource damages and state and local response costs. The oil giant has confirmed that the fund does not represent a cap on its liabilities.
Following the meeting, the board decided to cancel the first quarter dividend scheduled for payment on 21st June, and said that no interim dividends will be declared in respect of the second and third quarters of 2010. The board will consider resumption of dividend payments in 2011 at the time of issuance of the fourth quarter 2010 results, by which time it expects to have a clearer picture of the longer term impact of the Deepwater Horizon incident. At the same time BP says that to further increase the company's available cash resources, the board intends to implement a significant reduction in organic capital spending and to increase planned divestments to approximately $10bn over the next twelve months.
Chairman Carl-Henric Svanberg said: "We appreciated the constructive meeting conducted by the President and his senior advisers and are confident that the agreement announced today will provide greater comfort to the citizens of the Gulf coast and greater clarity to BP and its shareholders. We welcome the administration's statements acknowledging that BP is a strong company and that the administration has no interest in undermining the financial stability of BP. This agreement is a very significant step in clarifying and confirming our commitment to meet our obligations. We regret the cancellation and suspension of the dividends, but we concluded it was in the best interests of the company and its shareholders."
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