The White House late yesterday released details about its agreement with BP PLC to set up a $20 billion claims fund to pay damages to victims of the Gulf of Mexico oil spill.

The 40-page agreement confirms that the company is required to set aside revenue from its oil and natural gas production as collateral for shoring up the victims fund, something environmental and left-leaning advocacy groups had feared.

It also makes it clear that the fund cannot be used to pay fines that the Obama administration plans to impose on the oil giant as a result of the massive spill in the Gulf of Mexico.

The terms of the agreement require BP to contribute $5 billion this year and $1.25 billion every quarter in 2011 through 2013. To ensure those payments, BP will give the fund first priority to the security interests in its domestic oil and gas production. Production payments from the 149 current Gulf of Mexico wells will be held and issued in a new subsidiary.

But some are already raising red flags that the agreement makes BP too cozy with the government.

Public Citizen said the collateral agreement is "wildly inappropriate" because it may dissuade the Obama administration from pursuing criminal charges against BP or from cracking down on its safety failings.

David Pettit, director of the Natural Resources Defense Council's Southern California air program, is also questioning the administration's decision to use domestic production as collateral for the fund.

"The U.S. Treasury would have a direct financial interest in the success of BP's oil exploration and production activities in the Gulf until the entire $20 billion is deposited in the escrow fund," he wrote in a blog posting earlier this week. "You may recall that one of the criticisms of [the Minerals Management Service] was that it had an inherent conflict of interest because it was charged with regulating the same oil companies that it depended on for royalty income. If anything, the potential new deal ... is worse because it revives the regulatory/royalty conflict plus it makes the federal regulators subject to claims that they are favoring BP over other oil companies in the Gulf in order to fatten up the BP escrow fund."

But an associate U.S. attorney general who helped negotiate the deal said earlier this week that the collateral agreement was necessary to ensure that the company had enough money to meet its claims should it run into financial problems.

The fund will be administered by two independent trustees, and Kenneth Feinberg, the administration's pay czar, will process claims, the agreement says.

Texas sues Interior over moratorium

The state of Texas has filed suit against the Obama administration over its deepwater drilling moratorium, saying it violates a law requiring officials to first consult with states on such matters.

The suit, filed yesterday in federal district court in Houston, cites the Outer Continental Shelf Lands Act, which requires the Interior secretary to coordinate with states that might be affected by drilling decisions before taking any action. The law also requires the government to weigh the economic impact of actions, like a drilling ban, before imposing them.

"The federal government ignored the state of Texas and failed to comply with the law when the secretary of the Interior unilaterally imposed the administration's offshore drilling ban," Texas Attorney General Greg Abbott (R) said in a statement. "Under federal law, affected states are guaranteed the right to participate in offshore drilling-related policy decisions, but the Obama administration did not bother to communicate, coordinate or cooperate with Texas."

The suit asks the court to grant the state "a reasonable opportunity to participate" in the formulation of offshore policy and that the economic impact of the moratorium must be considered.

Yesterday, Interior asked a federal judge in New Orleans to dismiss a lawsuit over its original six-month drilling ban that was imposed in late May. The judge overturned that moratorium in June, and an appeals court panel upheld his ruling. But the Obama administration in July imposed a new -- but similar -- moratorium on deepwater drilling.

Obamas head to Gulf for vacation

The first family is headed to Florida this weekend for a brief vacation and to demonstrate that the Gulf's once-booming tourism industry is still open for business.

White House spokesman Robert Gibbs said yesterday that the primary focus of the president's visit with his family will be to highlight that many parts of the Gulf have not been affected by oil washing ashore.

The president and first lady "both believed that it was important to highlight that, indeed, the Gulf Coast is, during a busy summer, open for business, and the families that are there are enjoying their time there," Gibbs said at a briefing at the White House yesterday. "Even as the president talks about what our next steps are in our response, obviously part of this will be highlighting the tremendous economic toll that has taken place -- as I said, even on places that didn't necessarily see a large amount of oil wash up, are still very much open for business."

During the one-day trip, Obama will also meet with Navy Secretary Ray Mabus, whom Obama has tapped to oversee the Gulf recovery effort, as well as local business and tourism leaders.