BP will initially make payments of $3bn into the fund in the third quarter of 2010 and $2bn in the fourth quarter of 2010. These will be followed by a payment of $1.25bn per quarter until a total of $20bn has been paid in.
The $20bn fund will not be controlled by either BP or by the US government. It will be put in an escrow account, administered by Ken Feinberg, a US attorney specialising in mediation and alternative dispute resolution. A three-person panel will adjudicate any claims that are turned down.
Additionally, BP has voluntarily agreed to establish a $100m fund to compensate unemployed oil rig workers affected by the closure of the deepwater rigs.
Any money left in the fund once all legitimate claims have been resolved and paid will revert to BP.
As a consequence of the fund’s creation, BP has reviewed its dividend policy and decided to cancel its previously declared first-quarter dividend scheduled for payment on 21 June. The company will not declare any interim dividends in the second and third quarters of 2010.
BP will consider resumption of dividend payments in 2011 when it issues its fourth-quarter 2010 results, by which time it expects to have a clearer picture of the longer-term impact of the Deepwater Horizon incident.
BP’s businesses continue to perform well, with cash flows from operations expected to exceed $30bn in 2010 before taking into consideration costs related to the Deepwater Horizon spill.
To further increase the company’s available cash resources, BP intends to implement a significant reduction in capital spending and to increase planned divestments to approximately $10bn over the next 12 months.