WASHINGTON — President Barack Obama wrested a $20 billion compensation guarantee and an apology to the nation from British oil giant BP Wednesday, announcing the company would set up a major claims fund for shrimpers, restaurateurs and others whose lives and livelihoods are being wrecked by the oil flooding into the Gulf of Mexico.
Applause broke out during a community meeting in Orange Beach, Ala., on the news.
"We asked for that two weeks ago and they laughed at us," Mayor Tony Kennon said. "Thank you, President Obama, for taking a bunch of rednecks' suggestion and making it happen."
Obama had said he would "make BP pay," and the company's chairman said after four hours of intense White House negotiations that BP was ready.
The unending oil spill saga had yielded almost no good news before this. Creation of the fund — to be run by an administrator with a proven track record — is the first big success Obama has been able to give to Gulf residents and the nation in the eight weeks since the explosion, a period during which the spill has taken ever more of the public's attention, threatening anything else the president hoped to focus on or accomplish.
Huge as the $20 billion seems, both Obama and London-based BP PLC said it was by no means a cap.
The deal also adhered to what Obama had said was his non-negotiable demand: that the fund and the claims process be administered independently from BP. It won't be a government fund, either, but will be led by the administration's "pay czar," Kenneth Feinberg, better known as the man who oversaw the $7 billion government fund for families of victims of the Sept. 11, 2001, terrorist attacks.
The April 20 explosion of an offshore oil rig killed 11 workers and sent millions of gallons of crude spewing into the water from the broken well a mile below the ocean's surface — as much as 118 million gallons so far and still flowing. More wildlife, beaches and marshlands are fouled every day, jeopardizing not just the region's fragile ecology but a prized Gulf way of life that is built on fishing and tourism.
On Wednesday, BP began burning oil siphoned from the ruptured well as part of its plans to more than triple the amount of crude it can stop from reaching the sea by the end of the month, the company said. It's the first time this particular burner has been deployed in the Gulf.
Though the company hopes to install equipment soon to capture as much as 90 percent of the escaping oil, the leak is expected to continue at least until relief wells are finished in August.
The use of the BP escrow fund is intended to avoid a repeat of the painful aftermath of 1989 Exxon Valdez oil disaster in Alaska, when the fight over money dragged out in courts over roughly two decades.
"What this is about is accountability," said Obama in brief remarks in the State Dining Room after a four-hour, on-again, off-again White House negotiation session with BP executives. "For the small-business owners, for the fishermen, for the shrimpers, this is not just a matter of dollars and cents. ... A lot of these folks don't have a cushion."
'Small people' — oops
On the driveway outside, BP Chairman Carl-Henric Svanberg apologized for "this tragic accident that should never have happened."
Video: 'Small people' comment causes flap for BP "We care about the small people," he said.
"We're not small people," said Justin Taffinder of New Orleans. "We're human beings. They're no greater than us. We don't bow down to them."
Added Terry Hanners, who has a small construction company in Gulf Shores, Ala.: "These BP people I've met are good folks. I've got a good rapport with them. But BP does not care about us. They are so far above us. We are the nickel-and-dime folks of this world."
By evening Svanberg was apologizing again. "I spoke clumsily this afternoon, and for that, I am very sorry," he said in a statement. "What I was trying to say — that BP understands how deeply this affects the lives of people who live along the Gulf and depend on it for their livelihood — will best be conveyed not by any words but by the work we do to put things right for the families and businesses who've been hurt."
Back to the Hill
The apologetic talk was expected to continue Thursday when company CEO Tony Hayward will face sharp questions from lawmakers on Capitol Hill.
In prepared testimony obtained by The Associated Press, Hayward expressed contrition for the spill and its effects and said he was "personally devastated" by "these tragic events." He pledged, "We will not rest until the well is under control, and we will meet all our obligations to clean up the spill and address its environmental and economic impacts."
Video: Will BP survive long enough to make it right? In creating a victims' compensation fund, BP will use noncore U.S. assets as security for its $20 billion obligation. Chief Financial Officer Byron Grote stopped short of calling it a lien, but he said the assets will be used as security.
If BP had to borrow money in the future to pay any of its obligations, that might prove difficult because rising investor concerns could raise the company's borrowing costs. As of the end of March, BP reported only $6.8 billion in cash and cash equivalents. Grote said the amount has not changed "materially" since then.
Svanberg announced the company would not pay dividends to shareholders for the rest of the year, including one scheduled for June 21 totaling about $2.6 billion. The company will make initial payments into the escrow fund of $3 billion this summer and $2 billion in the fall, followed by $1.25 billion per quarter until the $20 billion figure is reached.
Pushing for a strong BP
Aware that a healthy BP is in everyone's interest, Obama gave a plug for what he called "a strong and viable company" — a day after he had accused it of recklessness. The viability of the compensation fund could be on shaky ground if BP eventually were forced to file for bankruptcy as some fear.
BP shares gyrated as the events unfolded. They rose more than 5 percent to $33 after Obama's words of support. But they slipped back as investors digested the full extent of BP's commitments, ending the day with a gain of 45 cents to close at $31.85 per share.
The company's potential liabilities, including cleanup costs, victims' compensation and civil fines, are breathtaking to consider — stretching far beyond the $20 billion fund.
For example, civil penalties can be levied under a variety of environmental protection laws, including fines of up to $1,100 for each barrel of oil spilled. That alone could translate to as much as $3 billion. If BP were found to have committed gross negligence or willful misconduct, the civil fine could be up to $4,300 per barrel, approaching $12 billion.
So far, 66,000 claims have been filed, $81 million awarded and 26,000 checks cut, said Coast Guard Adm. Thad Allen.
The $20 billion escrow fund can be used to pay all claims, including environmental damages and state and local response costs, with the exception of fines and penalties.
Resolving one particularly thorny dispute between BP and the government, the company also agreed to establish a separate $100 million fund to support oil rig workers idled by Obama's post-spill six-month moratorium on new deep-sea oil drilling. The administration also was to ask Congress for special unemployment insurance for the workers.
There has been little love lost between Obama and BP recently, with the president's rhetoric becoming increasingly sharp. In yet another jab at BP, the deal was made public by Obama aides even while the much-anticipated White House confrontation was under way.
The showdown opened with an apology from Svanberg and a recitation from Obama of the ills he has seen on his visits to the Gulf. The two sides broke up several times to talk privately or for Obama's aides to go consult with him, as the president stayed for the first 20 minutes but only ducked in and out after that. At one point, Obama and Svanberg spent 25 minutes alone in the Oval Office.
Afterward, the two men had respectful words for each other, with the chairman seeming to praise what he called the president's evident frustration on behalf of Gulf residents.
Feinberg ran the government compensation program for 2001 attacks for nearly three years, deciding how much families should get based largely on how much income the victims would have earned in a lifetime.
As Obama's "pay czar," he sets compensation limits for executives at banks and other companies getting the most aid from the $700 Wall Street bailout fund, with the aim of keeping runaway bonuses and salaries in check for those seen as most at fault for the economic meltdown.
BP has taken the brunt of criticism about the oil spill because it was leasing and operating the Deepwater Horizon rig that sunk. It also is a majority owner of the undersea well.
But several others companies involved in the failed oil may well be required to chip in as well. Swiss-based Transocean Ltd. owned a majority interest in the rig. Anadarko Petroleum, based in The Woodlands, Texas, has a 25 percent non-operating interest in the well.
The Associated Press and Reuters contributed to this report.