By Jeff Mason
WASHINGTON (Reuters) - Under intense pressure from President Barack Obama, BP <:BP.LO:>Plc agreed on Wednesday to set up a $20 billion (13.5 billion pound) fund for claims from its huge Gulf of Mexico oil spill and suspended dividend payments to its shareholders.
Obama announced the deal on the special fund after White House officials held four-hour talks with BP executives on the 58-day-old oil spill crisis. He said the money would go towards making the Gulf Coast "whole again."
Obama, who has been criticized by some for not being tough enough on BP, demanded in Wednesday's White House meeting that the company set aside money in an independently administered fund to pay for claims arising from the worst oil spill in U.S. history.
An April 20 explosion on an offshore rig owned by the British energy giant killed 11 workers and ruptured a deep-sea well. The ensuing spill has fouled 120 miles (190 km) of U.S. coastline, imperilled multibillion-dollar fishing and tourism industries and killed birds, sea turtles and dolphins.
In a conciliatory statement outside the White House, BP chairman Carl-Henric Svanberg apologized to the American people on behalf of BP. "I do thank you for the patience that you have during this difficult time," he said.
"I hear comments sometimes that large oil companies are greedy companies who don't care, but that is not the case in BP, we care about the small people," Svanberg said.
Svanberg said BP's board had agreed not to pay dividends this year and promised to make sure damage claims were handled swiftly and fairly.
BP said in a statement it would cut three quarters of dividends, significantly reduce its investment program and sell $10 billion of assets to fund a planned $20 billion fund to pay for the oil spill.
The commitments are harsher penalties than most investors had expected.
Investors had expected the suspension of BP's dividend, or payment in shares for a couple of quarters and had not expected BP to be forced to sell assets and cut investment -- moves that would curb BP's future growth.
The White House said it did not believe that BP would have agreed to set up the special fund without pressure.
Obama had called for such a third-party administered fund after hearing first-hand complaints from Gulf coast residents that BP's claims process was too long and complicated and that the company was paying out too little money.
He stressed, however, that it did not put a cap on BP's liabilities for the disaster.
Obama said BP had also agreed to set aside $100 million for workers who had lost jobs because of a six-month moratorium his administration imposed on deepwater drilling after the spill.
"We will continue to hold BP and all other responsible parties accountable. And I'm absolutely confident BP will be able to meet its obligations to the Gulf Coast and to the American people," Obama said.
'STRONG AND VIABLE COMPANY'
"BP is a strong and viable company, and it is in all of our interests that it remain so," Obama said. The oil giant represents a large part of investments in Britain. Obama and British Prime Minister David Cameron talked about the issues around the spill at the weekend.
BP's shares gyrated in volatile New York trading, dropping as much as 5 percent in the morning before swinging back to punch into positive territory after news of the agreement on the fund, known as an escrow account.
"It takes a little bit of pressure off BP," Iain Armstrong, an oil analyst at brokerage Brewin Dolphin in London, said of the escrow agreement. "If it gets Obama off their back, it can't be that bad."
The $20 billion figure is roughly equal to BP's average annual profits over the past four years. BP is expected to report net profits of $18.9 billion in 2010, according to Thomson Reuters I/B/E/S consensus estimates
Kenneth Feinberg will administer the BP escrow fund, Obama said.
Feinberg was the "pay czar," the official who oversaw compensation for executives at companies that received federal bailout funds. Feinberg also oversaw a compensation fund for victims of the September 11, 2001, attacks on the United States.
Underscoring concerns in Britain that Obama is trying to increase BP's potential liabilities for the spill, Cameron said BP was eager to face claims arising from the spill but it should not have to pay any that are too far removed from the disaster.
Cameron is under intense domestic pressure to stand up for BP, which many Britons perceive is being treated too harshly by the U.S. administration to the detriment of British pension funds and other investors with big stakes in BP.
"While it's important that they (BP) pay reasonable claims, and BP accept this themselves, they do need a level of certainty, and this is BP's worry, that there won't be claims entertained that are three or four times removed from the oil spill," Cameron said during a BBC radio phone-in program.
As BP's executives met with Obama administration officials at the White House, the company continued to wrestle with the oil spill in the Gulf.
It started up a second system to siphon oil from its gushing leak early on Wednesday, a day after a team of U.S. scientists raised their high-end estimate of the amount of crude oil flowing from its well by 50 percent to between 35,000 and 60,000 barrels per day.
The new containment cap system is intended to increase overall collection capacity to 28,000 barrels a day from around 15,000 a day now. The company is drilling relief wells that it hopes will definitively halt the spill in August.
(Additional reporting by Matt Spetalnick, Caren Bohan, Patricia Zengerle and Alister Bull in Washington, Estelle Shirbon and Tom Bergin in London and Kristen Hays in Houston; Writing Ross Colvin; Editing by Will Dunham)
