Under terms with govt, BP victims' compensation fund may rely on drilling money as collateral

The $20 billion victims' compensation fund established for the Gulf oil spill may use revenue from BP's oil and gas drilling as collateral, according to details released Wednesday by the White House.

The government watchdog group Public Citizen criticized the arrangement as a conflict of interest, arguing that it gives the government a financial incentive to encourage BP to keep drilling offshore.

BP has already made a $3 billion initial deposit, announced Monday. The company must pay $2 billion more this year and continue in installments of $1.25 billion, according to the trust documents released Wednesday.

The trust calls for a collateral fund to ensure that all the necessary money will be available if something happens to the BP subsidiary that established the trust. Details must still be negotiated, but the trust documents say that unless a different agreement is reached, BP will agree to give the trust first priority to production payments from the company's U.S. oil and gas production as collateral.

Tyson Slocum, director of Public Citizen's energy program, said that securing the compensation fund with drilling revenue "is wildly inappropriate, as it will make the government and BP virtual partners in Gulf oil production. ... It will give the government a financial incentive to become an even bigger booster of offshore oil drilling in the Gulf."

The trust fund was negotiated by the Justice Department. A department spokeswoman did not immediately return a call for comment.

The trust is to be administered by two independent trustees, with claims being processed by Kenneth Feinberg, the Obama administration's pay czar.