The Justice Department announced Monday it has completed negotiations with BP (BP) over the establishment of the $20 billion escrow account the Obama administration had insisted on in the midst of the Gulf oil spill. The account is meant to make sure the company has sufficient resources to help pay claims to Gulf Coast residents affected by the Deepwater Horizon oil spill.
Associate Attorney General Tom Perrelli said: "We are pleased that BP made an initial contribution and has taken an important step toward honoring its commitment to the President and the residents and business owners in the Gulf region."
BP announced Monday that it has made a $3 billion initial deposit to the escrow account. "Establishing this trust and making the initial deposit ahead of schedule further demonstrates our commitment to making it right in the Gulf Coast," said Bob Dudley, the successor to current BP CEO Tony Hayward and still head of BP's Gulf Coast Restoration Organization. BP had agreed to make the first payment at the end of the third quarter.
BP will make an additional $2 billion deposit in the fourth quarter. Thereafter, it will add $1.25 billion per quarter until the total reaches $20 billion, BP said.
Just the Start
Noting that $3 billion remains a far cry from $20 billion, Perrelli added: "We have made clear that the company still needs to ensure that the necessary funds will be available if something happens to the subsidiary that established the trust, and we look forward to completion of an appropriate security arrangement in the near future."
The Wall Street Journal reports that the issue of collateral is the last detail to be ironed out. Under the latest negotiations, BP would use revenue from its other Gulf wells as collateral for the fund. Dudley and White House Chief of Staff Rahm Emanuel met Monday to discuss the issues. In a press release, the White House said it "impressed upon BP the importance of living up to their commitment to long term recovery."
Shares of BP fell nearly 2% in recent premarket trading on Tuesday.
This article was originally published by The Motley Fool.