Oil spill: BP's Tony Hayward faces Congress
Updated on 17 June 2010
BP boss Tony Hayward will tell US Congress today he is "personally devastated" by the Gulf Oil spill, as the oil giant agrees a $20bn fund to cover damages and suspends its dividend for the rest of the year. BP says this is prudence, but investors will panic, says Channel 4 News business correspondent Siobhan Kennedy.
Mr Hayward will face US lawmakers with a prepared speech, giving "my pledge as leader of BP that we will not rest until we stop this well, mitigate the environmental impact of the spill and address economic claims in a responsible manner".
The face of the crisis, Mr Hayward has come under heavy fire for his handling of the disaster and has been branded "the most hated man in America".
He is expected to say: "Neither I nor the company is perfect. But we are unwavering in our commitment to fulfil all our responsibilities.
"We are a strong company, and nothing is being spared."
More on BP's $20bn fund from Channel 4 News
- Obama's 'King Solomon' in charge of the account
- What is an escrow account and is it legally enforceable?
During a meeting with US President Obama yesterday, the group's executives agreed to set aside $20bn into an escrow fund to cover the fallout from the Deepwater Horizon oil leak.
The funds will be independently managed and overseen by Ken Feinberg, who ran the 9/11 victims' fund.
Mr Hayward will admit that there is "still extensive work to do" in the clean-up, while "none of us yet knows why it happened".
"I fully grasp the terrible reality of the situation", he will say, adding: "I understand that only actions and results, and not mere words, ultimately can give you the confidence you seek. We will be, and deserve to be, judged by our response."
BP cuts dividend, reduces investment and sells $10bn of assets
Last week on conference call the Chief Executive Tony Hayward and chairman Carl-Henric Svanberg went to great lengths to reassure investors that they had plenty of firepower to not only meet the costs of the operations in the Mexican Gulf but also meet its other commitments, reports business correspondent Siobhan Kennedy.
While they didn’t specifically say they would pay the dividend they left investors with no doubt they had the money to do so, it was just a question of prioritising the Mexican Gulf spill first.
Yet just one week later under pressure from President Obama to put aside a massive $20bn fund, the company has now decided it no longer has the cash reserves to meet all its costs and pay the dividends.
The payments for the quarter are expected to be about $2.5bn and the company chairman on Monday had discussed a number of options with investors on a conference call including the temporary suspension of the dividend.
But while most investors, who have been broadly supportive of Tony Hayward's management, have factored in a cancellation of the payout for one quarter, few were expecting it to be wiped out for the rest of the year. One investor told Channel 4 News last week that if the dividend was cancelled he would likely pay for it with his job.
It's clear that Obama's decision to push BP to put aside such a huge amount of funds has forced BP's hand. As of last week BP almost bragged about its available cash reserves - $5bn in ready cash and a further $10bn in facilities - yet having to set aside more than that for the liability fund clearly BP has been left with no choice but to rein in its spending including its dividend.
BP is saying this is prudence but investors will see this as panic.
Obama said last night that BP was a strong and viable company, adding that: "I'm absolutely confident BP will be able to meet its obligations to the Gulf Coast and to the American people."
Chancellor George Osborne said on BBC Radio 4 earlier today: "This is a very important company, not just to the British economy but to the American economy as well, and we want it to succeed and flourish for all our sakes."
Shares in BP jumped around 5 per cent in early trading on the London stock exchange this morning.
Obama's comments followed a meeting with BP chairman Carl-Henric Svanberg, who announced yesterday that the company would not pay out dividends to its shareholders for the rest of the year.
Emerging from his meeting with Obama in the Oval Office, Mr Svanberg apologised for the catastrophe and said: "We have agreed today with the president a framework that should assure the American people that we mean what we say."
He added in a statement: "We regret the cancellation and suspension of the dividends, but we concluded it was in the best interests of the Company and its shareholders."
Meanwhile, today Mr Hayward will tell Congress that "no resource available to this company will be spared".
After yesterday's meeting with BP, Obama said he would "continue to press BP".
While the group's latest efforts should scoop up 90 per cent of the leak, Obama said last night: "That it still not good enough".
Mr Hayward will say today: "Let me be clear: BP has accepted this responsibility and we will fulfil this obligation." The clean-up has already cost BP $1.5bn, and it is a "responsible party" under the Oil Pollution Act.
However, he will add that: "It is important to understand that this "responsible party" designation is distinct from an assessment of legal liability for the actions that led to the spill. Investigations into the causes of the incident are ongoing, and issues of liability will be sorted out separately when the facts are clear and all the evidence is available."
Oil industry targeted
Experts have warned that the oil giants face their biggest challenge yet, as Obama seizes on the public outcry over the oil spill to push his green agenda.
In Obama's first televised address from the Oval Office - an event only in time of national crisis - he vowed to make BP pay and appealed to Americans to end their love affair with oil.
"The tragedy unfolding on our coast is the most painful and powerful reminder yet that the time to embrace a clean energy future is now," he said.
The entire industry will learn its lesson from the spill, Mr Hayward will say today, and will "emerge from it stronger, smarter and safer".
Green agenda: Obama's reputation is 'on the hook'
President Obama's international reputation hangs "on the hook" over the green agenda, Dan Lashof of the NRDC in Washington told Channel 4 News.
The US president made a commitment at Copenhagen last year to cut greenhouse gas emissions by 17 per cent by 2020 - a commitment he made not just to his voters at home but to the international community.
Dan Lashof, climate centre director at the Natural Resources Defense Council (NRDC) told Channel 4 News: "For the US domestic issues will always dominate, but for him personally he is still on the hook (to deliver the cut)."
Obama will seek to cash in on the popularity of the oil industry now languishing at all-time low, he said, forcing the sector to face its biggest challenge.
However, the oil giants make up the biggest industry in the world and will push back strongly, Lashof said.
"The oil companies will hide behind the American Petroleum Institute (API) - not wanting to expose their consumer brand," Lashof said.
"But you can expect lots of lobbying in the Halls of Congress, and adverts labelling gas taxes and job losses - politicians are afraid of that."
But with BP facing ever-growing public backlash over the oil spill, politicians finally have "the tools they need to win that argument", he said.
"Politicians - with the mid-term elections in November - will not want to be seen supporting oil companies," he added.
