BP agrees to suspend dividend

June 17, 2010 at 12:00a.m.

Associated Press

BP will suspend its dividend as part of its commitments to compensate victims of the Gulf oil spill. The oil giant also will cut spending and sell some assets after agreeing to pony up an initial $20 billion to a fund for paying damages.

BP Chairman Carl- Henric Svanberg made the announcement Wednesday after emerging from the White House where he and other BP executives met for four hours with President Barack Obama.

BP shares gyrated as the events unfolded. They gained after Obama said it was in everyone’s best interests that BP remain a viable company but then slipped back somewhat as investors digested the full extent of BP’s commitments.

BP canceled its dividend payment — totaling about $2.6 billion — scheduled for June 21 and said it won’t declare a dividend for the second and third quarters. The company also will sharply cut capital spending and increase its planned asset sales to about $10 billion over the next 12 months.

In creating a victims’ compensation fund, BP will set aside assets from its U.S. operations totaling $20 billion. It then will slowly make cash payments to build the fund, pulling out assets as it does so. The fund will “satisfy legitimate claims including natural-resource damages and state and local response costs” but not cover fines and penalties — expected to total in the billions — BP said.

Obama and key members of Congress in recent weeks have pressed BP to suspend the dividend payment and give assurances that the company will meet its commitments to Gulf coast residents and businesses economically harmed by the spill.

The oil company said “current circumstances” dictated a dividend suspension, even though it believes its cash flow is enough to cover both the quarterly payouts and costs from the spill. BP was expected to pay out about $10.5 billion in dividends this year. It estimated that its cash flow for this year, excluding costs from the Gulf incident, would top $30 billion.

Analysts anticipated some action on the dividend and said the agreement between BP and the White House removed a degree of political uncertainty that had been weighing on the stock. Phil Weiss, an analyst with Argus Research, said the only surprise for him was the rescission of the first-quarter payout.