Oil giant BP is to put $20bn (£13.5bn) in a compensation fund for victims of the Gulf oil spill and will not pay shareholders a dividend this year.

Barack Obama announced the compensation deal after talks at the White House with senior BP executives.

Shortly afterwards, BP chairman Carl-Henric Svanberg said dividends would not be paid for the rest of this year.

The payout fund is to be run by Kenneth Feinberg, a lawyer who oversaw compensation after the 9/11 attacks.

In his current role as Mr Obama’s “pay tsar”, Mr Feinberg sets salary limits for executives at firms in receipt of federal bailout funds.

Mr Obama said a $120m fund would also be set up to compensate oil industry workers.

He said he had heard growing concerns about the pace of compensation payments, and that the new fund would ensure all “legitimate” claims were paid.

“If you or your business has suffered economic loss as a result of this spill you will be able to file a claim,” the president said.

Although BP has agreed to fund $20bn - roughly equivalent to one year of BP’s annual profits - reports said there could be no cap on the amount BP might be asked to contribute to the fund.

Speaking after the talks, Mr Svanberg expressed regret over the spill, saying BP felt “sorrow and sadness for the tragic accident which should never have happened”.

“We will live up to all our legitimate responsibilities,” he said.

Earlier, BP’s chief executive, Briton Tony Hayward, and the boss of BP America, Lamar McKay, accompanied Mr Svanberg to the White House.

Share problems

The company has been accused of failing to follow proper procedures in the run-up to the explosion on the Deepwater Horizon rig on 20 April.

The blast led to the deaths of 11 people, caused the rig to sink and has since seen millions of barrels of oil spew into the Gulf of Mexico.

Much of that is now washing ashore in states along the Gulf coast.

The fallout is affecting businesses and wildlife, as well as wiping billions of dollars off BP’s value.

BP’s share price rose in US trading after an earlier slump as news of the funding deal emerged, but dipped as the day wore on and more details emerged.

In its latest effort to contain the oil spewing into the Gulf of Mexico, BP announced on Wednesday morning that it had begun operating a second containment system designed to bring oil and gas to the surface for burning.

BP managed to place a cap over the leaking oil pipe earlier this month, and is now collecting some of the oil.

However, estimates of how much oil is gushing out of the well have again risen dramatically since the start of the crisis.

A government panel of scientists now believes 35,000-60,000 barrels are leaking each day, up from its estimate last week of 20,000-40,000.

You can follow the testimony of BP chief executive Tony Hayward when he appears before a US Congress committee on the BBC News website on Thursday 17 June, from 1400GMT (1000 EST).

BBC News website