BP Pledges Gulf Oil Well Assets as Collateral For Oil Spill Fund

Posted in BP British Petroleum,Deepwater Horizon,Government,Gulf Coast on October 1, 2010

LONDON — In a press release on Friday, October 1, 2010 British Petroleum PLC (BP) announced that it “has pledged certain Gulf of Mexico assets as collateral for the $20 billion Deepwater Horizon Oil Spill Trust which was set up to pay legitimate claims arising from the April 20 incident.”

Response vessels and drill ships off the Louisiana coast in the Gulf of Mexico. Photo credit: Reuters/Sean Gardner

BP made the move to pledge royalty revenues from several of its Gulf of Mexico oil wells as a way to guarantee payment of claims from the disastrous blowout of its Macondo well.

BP pledged the royalty interest in the Mad Dog, Atlantis, Thunder Horse, Mars and Great White, Na Kika and Ursa fields in the Gulf of Mexico as collateral.

In a recent Reuters article, Alan Sinclair, analyst for Seymour Pierce, said that this was a clever move on the part of BP because it was like saying, “here are our deep water Gulf of Mexico assets, and we’re pledging overriding royalties as collateral.” It seems to suggest to the U.S. administration not to meddle with these facilities in any way.

Concerns have been raised that the U.S. could ban BP from future drilling in U.S. waters after an amendment to a bill was passed in July preventing BP from acquiring new exploration leases following the catastophic blow-out of its Macondo well in April, 2010.

BP declined to comment on whether or not its recent move to pledge Gulf assets meant that the company expects, or the U.S. government has told BP, that it will not be banned from future drilling.

The pledging of Gulf assets is in accordance with the terms of the fund set out in August, 2010. Acording to the Reuters article, at that time, BP agreed to give the fund first priority to some oil revenues to finance its $5 billion contribution this year and the $1.25 billion every quarter from 2011 to 2013.

BP made the following statement in the press release:

The pledging of these assets underscores our commitments to the Trust which we set up to pay all legitimate claims arising from the tragedy,” said Lamar McKay, Chairman and President of BP America Inc. and BP’s Gulf Coast Restoration Organization.

BP also said that as of September 29, 2010 it has spent $11.2 billion for stopping the oil spill and for compensating the victims. Prior to this, the total bill was $9.5 billion as of September 18.