The $20 billion BP escrow is to be paid ..... over next 3.5 YEARS.

[Statistical]

Per BP press release

Agreement was reached to create a $20bn claims fund over the next three and a half years on the following basis:

* BP will initially make payments of $3bn in Q3 of 2010 and $2bn in Q4 of 2010. These will be followed by a payment of $1.25bn per quarter until a total of $20bn has been paid in.
* While the fund is building, BP's commitments will be assured by the setting aside of U.S. assets with a value of $20bn. The intention is that this level of assets will decline as cash contributions are made to the fund.
* The fund will be available to satisfy legitimate claims including natural resource damages and state and local response costs. Fines and penalties will be excluded from the fund and paid separately. Payments from the fund will be made as they are adjudicated, whether by the Independent Claims Facility (ICF) referred to below, or by a court, or as agreed by BP.
* The ICF will be administered by Ken Feinberg. The ICF will adjudicate on all Oil Pollution Act and tort claims excluding all federal and state claims.
* Any money left in the fund once all legitimate claims have been resolved and paid will revert to BP.

So:
$3.00B in Q3 2010 (July-Sept)
$2.00B in Q4 2010 (Oct-Dec)
$1.25B in Q1 2011
$1.25B in Q2 2011
$1.25B in Q3 2011
$1.25B in Q4 2011
$1.25B in Q1 2012
$1.25B in Q2 2012
$1.25B in Q3 2012
$1.25B in Q4 2012
$1.25B in Q1 2013
$1.25B in Q2 2013
$1.25B in Q3 2013
$1.25B in Q4 2013

Just to put it into perspective. BP clears about $24B in free cashflow per year. So in 3.5 years that is $84 billion.
Also that is at CURRENT oil prices. Every dollar oil rises above $80 in another half billion in free cash flow.

Notice the part about how cleanup will also be paid from the fund. It isn't just liability/damages.

No wonder why stock went from down 5% to up 2% on the news.

[truebrit71]

1. Yup. Plus they'll probably find some way to write it off on their books...

..

[Statistical]

2. Of course they will it is a cost.

The fund alone will save BP about $7B in taxes (35% corporate tax rate).

Another way to look at it is the taxpayers get $20B but that reduced taxes by $7B. So net-net it is more like $13B.

[emulatorloo]

7. Um, I think they'd rather have the money than the "tax savings"

Unfortunately they don't get to choose.

[Statistical]

10. I never claimed they didn't.

Just pointing out $20B over 3.5 years isn't going to go that far.

Not with tens of billions of dollars in damages RIGHT now this very second. Tens of thousands of people out of work, millions of dollars being lost daily due to canceled booking and closed fishing areas.

It is good news for the companies who can survive long enough to collect a check but $3.5B over next 3 months isn't going to do anything to relieve suffering in the Gulf.

[tranche]

3. It's almost as if it's not $20 billion dollars.

Plus, I wonder how the "uncapped" designation works.

[Oregone]

4. Well, thats how my escrow works

I don't know...howd anyone expect it to be setup differently?

[ProSense]

5. Yes, every company welcomes a $20 billion liability

over four years with no cap on damages because it represents a tax break, right?

There was, initially, outrage that the cap was only $75 million. Democrats were lobbying to raise it to $10 billion. Now that it's uncapped, that's bad?

It's really going to be fun to watch a $20-billion dollar liability being spun as good for BP.

[Statistical]

8. You think a fisherman is going to be happy to know

that if he hasn't gone bankrupt or committed suicide he can get in line for a payment in 2013?

How long exactly do you think that first $3.5B is going to last? Hell there is like double that is CURRENT damages because the spill has been going on two months.

So if the $3.5B runs out BP can say "sorry our agreement w/ govt is not to put in another $2B until Oct.
What happens to claims while they wait another 3 months before BP puts in the next "chunk"?

[ProSense]

23. "You think a fisherman is going to be happy"

The claims system sets up a formal process to be run by a specialist with a proven record. Instead of vague promises by BP, there will be a White House-blessed structure with substantial money and the pledge that more will be provided if needed. The news was applauded in the Gulf — a rare positive development in a terrible two-month period since the April 20 explosion that killed 11 workers and unleashed a flood of oil that has yet to be stemmed.

<...>

Word of the fund was well received on the Gulf Coast. Applause broke out during a community meeting in Orange Beach, Ala., when Mayor Tony Kennon briefed participants on the White House meeting.

"We asked for that two weeks ago and they laughed at us," Kennon said. "Thank you, President Obama, for taking a bunch of rednecks' suggestion and making it happen." Obama visited Orange Beach on Monday.

link

To answer your question: yes!

[Statistical]

26. Yeah the headline news was BP PAYS $20B. I would cheer at that too.

That sound pretty good.

When those same people find out that there claim is denied until Oct or January 2011 because the fund has run out of money and BP is only obligated to add the next $2B in Oct 2010 I don't think there will be any cheering.

Do you think total damages so far are MORE or LESS than $3B?
Do you think the total acrueed for far plus all the damages over the next 4 months will be more or less than $5B?

If it is more than some people will be waiting a long time for the "$20B" to finally arrive. It is Exxon all over again.

[emulatorloo]

6. Well, they will be needing to make pay-outs over the next 3.5 years

There is also some hinting that there is not a cap to this. If more money is needed, they will have to find it.

[berni_mccoy]

9. Seeing how they only have $7 billion cash on hand at the most

3.5 years to pay it off is pretty good.

[Statistical]

13. Not really.

BP only has $6.8B in cash but they have another $5.4B in short term investments (stocks, bonds, financial accounts which can be liquidated).

That is $12.2B right there.

A larger metric would be "current assets". This is stuff BP can liquidate/redeem within 90 days.
BP current assets are $70 billion.

http://www.google.com/finance?q=NYSE:BP&fstype=ii

Then you have to consider BP clears about $2B a month in free cash flow. 30 days = another $2B coming in from oil sales. Next 30 days = another $2B in free cashflow.

The idea that BP can "only" afford 20B over next 3.5 years is a joke. Obama tossed them a softball and they knocked it out of the park. Sure they canceled the dividend but canceling the dividend doesn't cost the company anything.

[WeDidIt]

11. $20 billion in US assets are collateral

So every penny of it is put up in the form of assets right fucking now.

And this is not a cap.

[emulatorloo]

12. Thanks for the clarification n/t

[pinto]

14. True, but claims can be filed *today* and paid for losses to date. I think Gulf state folks are

going to welcome this financial relief. As are the unemployed BP employees.

This is not a fix all measure, by any means, but one really needed to help people immediately effected by the blow out.

[Statistical]

15. There likely is more than $3.5B in losses so far.

So when BP deposits the first installment in July what happens when claims exceed amount in the account?
How do you feed your family on a promise that BP will eventually put all $20B into the account?

[WeDidIt]

18. It'll be covered

There are $20 billion dollars in US assets set aside as collateral, so it all gets covered if by no other means than the Fed.

[Statistical]

20. The point is BP has $12.2 billion in cash & investments.

Total of $67B in current assets and cashflow of $2B a year.

It would be like I am a multi-millionaire and you are living paycheck to paycheck. I run over your leg and by the time you get a settlement you have been out of work for 3 months. When you finally get a settlement the judge allows me to drag payments out over 3 years despite me having more than enough asset & cash to cover it much quicker than that. You are in a hole and sinking fast and I get to slowly pay off the liability as my leisure.

[WeDidIt]

25. Your analogy falls flat

because the other choice is to let it play out in the courts where it could be twenty years before anybody realizes anything.

Bottom line is, $20B of the $67B is set aside as collateral.

This protects the cash position of BP in a time when their stock price has dropped through the floor and the basement to the sub basement. If they lost their cash position right now, they would be belly up next week.

I'd rather get the money out of them than to have them go completely belly up, sell off all assets, and nobody sees a cent.

[Statistical]

27. Why would BP goes belly up because the stock tanks?

They could be completely delisted and that wouldn't materially affect their ability to maintain operations.

BP is cashflow positive even with the spill. BP reports they paid $1.46B so far in claims, cleanup, and mitigation costs.
Since the well exploded BP free cashflow has been north of $4B.

BP was let off light. The $20B was a good start but Obama team should have negotiated harder to get the timeline more realistic. Something like $5B now and $5B per qtr for the next 3 qtrs.

[apples and oranges]

16. Didn't you buy a bunch of BP stocks? How is that working out?

[Scuba]

17. Let's see.. I do a trillion dollars damage, and have to pay ....

... well I don't have to pay, just put the money in a fund.

[emulatorloo]

19. 20B is for compensation. Damage and clean-up are separate.

[Statistical]

21. Nope. Read above.

"The fund will be available to satisfy legitimate claims including natural resource damages and state and local response costs. Fines and penalties will be excluded from the fund and paid separately. Payments from the fund will be made as they are adjudicated, whether by the Independent Claims Facility (ICF) referred to below, or by a court, or as agreed by BP."

[emulatorloo]

24. See also below.

[emulatorloo]

22. FACT SHEET: "This account is neither a floor nor a ceiling on liability."

http://www.whitehouse.gov/the-press-office/fact-sheet-claims-and-escrow

=====

FACT SHEET: Claims and Escrow

INDEPENDENT CLAIMS FACILITY

A new, independent claims process will be created with the mandate to be fairer, faster, and more transparent in paying damage claims by individuals and businesses.

To assure independence, Kenneth Feinberg, who previously administered the September 11th Victim Compensation Fund, will serve as the independent claims administrator.

The facility will develop standards for recoverable claims that will be published.

A panel of three judges will be available to hear appeals of the administrator’s decisions.

The facility is designed for claims of individuals and businesses who have been harmed by the oil spill; local, state, tribal, and federal government claims will continue to be handled directly by BP.

The facility will decide all claims as expeditiously as possible, and in any event within the existing statutory timeframe.

Dissatisfied claimants maintain all current rights under law, including the right to go to court or to the Oil Spill Liability Trust Fund.

Decisions under current law by the independent claims facility shall be binding on BP.

All claims adjudicated under this facility have access to the escrow account for payment.

ESCROW ACCOUNT

BP has agreed to contribute $20 billion over a four-year period at a rate of $5 billion per year, including $5 billion within 2010. BP will provide assurance for these commitments by setting aside $20 billion in U.S. assets.

BP has reaffirmed its commitment to pay all removal costs and damages that it owes as a responsible party. It will not assert any liability cap under OPA to avoid liability.

The creation of the escrow account will provide assurance to the public that funds will be available to compensate the injured.

This account is neither a floor nor a ceiling on liability.

The escrow account is to be used to pay claims adjudicated by the independent claims facility, as well as judgments and settlements, natural resource damage costs, and state and local response costs.

VOLUNTARY CONTRIBUTION FOR RIG WORKERS

BP will contribute to a foundation $100 million to support unemployed oil rig workers.

The Administration’s May legislative proposal would create a new program of unemployment assistance, modeled after the Disaster Unemployment Assistance Program, to provide benefits to workers who lose their jobs as a result of a spill of national significance.

ENVIRONMENTAL AND HEALTH MONITORING

BP has previously committed $500 million for the ten-year Gulf of Mexico Research Initiative to improve understanding of the impacts of and ways to mitigate oil and gas pollution.

As a part of this initiative, BP will work with governors, and state and local environmental and health authorities to design the long-term monitoring program to assure the environmental and public health of the Gulf Region.

ON EDIT - formatting. It is formatted better and more readable at link.

[defendandprotect]

28. Right .. and with some eventual help from the rw Supremes one day might be $2.5 billion...

or less --

[Lone_Star_Dem]

29. They're assuring payment by setting aside $20B in US assets.

Which is an important detail.

[emulatorloo]

31. "BP reaffirmed its commitment to pay all oil removal costs and damages it owes as a responsible part

BP reaffirmed its commitment to pay all oil removal costs and damages it owes as a responsible party, and will not assert any liability cap under the U.S. Oil Pollution Act to avoid liability.

That too is a big deal. From the "fact sheet"

[Statistical]

32. Exxon affirms its commitments to pay all claims also.

Remind me how that one worked out.

Unless Obama has a signed contract backed up by a 500% penalty on exactly what will be and won't be paid any claims in vague terms like that are next to meaningless.

[emulatorloo]

33. Let's take it slow, you are going to wear out your crystal ball.

This isn't the Exxon Valdez, it isn't March 24, 1989, and Obama is not George H. W. Bush.

It has only been what, a couple hours since the announcement was made?

[ProSense]

34. "Remind me how that one worked out." Not good,

they didn't set up an escrow account.

What exactly are you arguing?

[Statistical]

35. You think total damages are going to be less than $20B? Really?

If I burn down your house ($200K) and then put $10K in an escrow account and to top that off I am allowed to pay that $10K over next 3 years tell how exactly how that provides any time of protection?

[ProSense]

36. What the hell are you talking about?

There is no cap on the liability. You know that so what the hell are you talking about?

[lamp_shade]

30. Sure enough... just as predicted... pissers and moaners.