From the Wall Street Journal, August 10, 2010: WASHINGTON—The Obama administration and BP PLC are close to a deal to use future revenues from the oil giant's Gulf of Mexico operations to guarantee its $20 billion cleanup and compensation fund, a move that would give both sides an incentive to continue production in the Gulf, scene of the U.S.'s worst-ever offshore oil spill.
The Justice Department and BP said Monday they had completed talks to establish the fund, which is designed to cover damage claims from residents and businesses hurt by the spill and clean-up efforts by state and local governments. BP paid $3 billion into the fund ahead of schedule.
Discussions continue, however, on how BP will guarantee its remaining obligation of $17 billion. At one point in the negotiations, the two sides discussed securing the fund with BP's oil fields in the Gulf, but the government didn't want to end up owning wells, said one person familiar with the situation.
BP has said it expects to be able to make the required payments to the $20 billion fund through its ongoing operations and asset sales. However, the administration wanted security in the form of collateral in the event that BP couldn't meet its obligation due to financial or legal problems.
The issue of collateral is the last detail to be ironed out. It is a prickly political issue because it could make the administration and BP partners of sorts in developing the Gulf.
Such a deal could provoke a backlash on Capitol Hill, where some lawmakers are moving to bar BP from operating in the Gulf. Legislation approved by the House of Representatives in July would effectively prohibit the government from issuing new offshore oil leases or drilling permits to the oil company by adding a roster of requirements BP couldn't satisfy.
BP currently is the operator of 89 producing wells in the Gulf and a stakeholder in 60 other wells operated by other companies. Of these 149 producing wells, BP's share of the production is 400,000 barrels a day. BP isn't currently drilling any new Gulf wells, other than a relief well for the plugging operation.
Under the latest negotiations, BP would use production payments from its producing Gulf wells as collateral for the fund, and would provide quarterly production updates to the government. The collateral requirements would be reduced as BP pays money into the fund.
An administration official called the oil revenue "one option" for collateral, adding that the administration needed to do more work on several factors including the "financial reliability of well production" in BP's Gulf operations. The Gulf region accounts for about 10% of BP's production of oil and gas and is one of the company's most profitable areas of business.
Lots more here:
Comments
My original tile for this blog was "The Ultimate Insult" but I was afraid... it could get worse!