BP has attempted to free itself from the mess it caused with the Gulf of Mexico oil well explosion and leak on April 20.
It will suspend $US7.5 billion in dividends this year.
The company has agreed, somewhat hesitantly from reports, to set up a $US20 billion fund to be run independently to pay the costs of the clean up.
The fund will be run over the next four years.
BP also said it plans to raise $US10 billion over the next year by cutting back on capital spending and selling some oil production assets.
It will also set up a $US100 million compensation fund to pay oil drilling workers laid off in the Gulf of a result of the spill and Government ban on drilling.
The news helped US stockmarkets reverse a down day and end roughly steady.
BP shares rose 4% on the news and ended trading up around 2%.
The oil and gas sector on Wall Street also lifted, helping the market close firmer.
The shares are still down around 47% since the disaster happened on April 20.
The news came a day after the company’s credit rating was slashed by the Fitch group.
It was the second time this month that Fitch, has cut BP’s credit rating; this time it dropped it by a nasty six notches to BBB from AA on Tuesday.
The rating was last moved to AA from AA plus on June 3.
The US Government has again lifted its estimate of the size of the oil leak to as much as 60,000 barrels a day.
Remember BP originally put the daily flow around 5,000 barrels. That has also undermined confidence in the oil giant and increased suspicions that it was downplaying the leak’s size deliberately.
President Obama and other US politicians again attacked the credibility of the company and the oil industry, especially where offshore drilling is concerned. (That matters in the US because the country supplies 40% of BP’s earnings, and assets and offshore drilling in the Gulf and elsewhere are the last untapped areas for America inside its boundaries.)
"We will make BP pay for the damage their company has caused," Obama said in the first Oval Office speech of his Presidency.
And according to a report on Reuters Bank of America Merrill Lynch has ordered its traders not to enter into oil trades with BP that extend beyond June 2011.
Reuters said that the decision was made on Monday and told traders not to engage in trade with BP for contracts beyond one year from this month.
The bank isn’t a big player in the oil market or a major dealer with BP, but it could be the start of similar action by other traders worried about BP’s financial strength and future.
Fitch blamed higher estimates for the size of the oil spill and US calls for the group to place funds in an escrow account to fund any potential liability claims.
"The principal changes in circumstances … include the indication late last week from US government scientists of a significantly higher spill rate than previously announced by all parties, which Fitch expects will materially increase BP’s exposure to Justice Department fines," it said.
It also added that there was a "significant step-up in action from the US government surrounding calls for pre-emptive escrowing of damage claims".
"Both of these events have a direct bearing on BP’s fundamental financial flexibility."
As a result, BP was facing higher near-term costs than Fitch had previously expected when it issued its first downgrade on June 3.
"The scale of today’s rating action has been partly driven by the increased risk that the balance between long-term and near-term cost payments may now be skewed much more heavily towards the near-term than previously anticipated by Fitch," Fitch added.
Despite the downgrade, BP saw its share price climb 0.59% to 357.55 pence in early afternoon London trade on the FTSE 100 index, which was 0.44% higher at 5,225.13 points.
The oil spill has already cost BP some 1.6 billion US dollars since the Deepwater Horizon rig it leased sank on April 22, and it may have to pay out billions more in compensation and fines.
Fitch also set its rating watch on BP to ‘evolving’ from negative, as credit risks from the Deepwater Horizon spill remained unclear.
"The scale of today’s rating action has been partly driven by the increased risk that the balance between long-term and near-term cost payments may now be skewed much more heavily towards the near-term than previously anticipated by Fitch.
"In particular, the recent claims by U.S. state and federal authorities that BP escrow significant sums pre-emptively, ahead of any agreed claims process, represent a material change in approach, should it ultimately prove a legally supportable move against the company.
"The principal changes in circumstances since Fitch’s downgrade to ‘AA’ RWN include:
1) the indication late last week from US government scientists of a significantly higher spill rate than previously announced by all parties, which Fitch expects will materially increase BP’s exposure to Justice Department fines payable in the near to medium-term, and;
2) the significant step-up in action from the U.S. government surroundin
