Oil and Gas

BP to use oil, gas revenue to secure spill fund

* Production payments held by new BP subsidiary

* Group says deal interferes with government investigation

* BP guaranteed future oil drilling to fund trust fund

WASHINGTON, Aug 11 (Reuters) - BP BP.L will use revenue from its U.S. oil and natural gas production as collateral for the $20 billion trust fund established to pay victims of the Gulf oil spill, but one public advocacy group is worried the deal makes the government too cozy with BP.

The government released on Wednesday the 40-page document formally establishing the escrow fund, which requires the company to contribute $5 billion this year and $1.25 billion every quarter starting in 2011 through 2013.

To ensure BP will make those payments, the company will give the trust fund first priority to the security interests in its U.S. oil and and gas production. The production payments from its current 149 Gulf of Mexico oil and gas wells will be held and issued in a new BP subsidiary.

However, that arrangement has drawn the ire of the Public Citizen advocacy group, which said it is a conflict of interest for the government to become a partner with BP in future Gulf oil and gas production.

The group sent a letter on Wednesday to President Barack Omaha saying the deal would interfere with the Justice Department’s investigation of BP.

“A criminal investigation resulting in sanctions imposed against BP -- including banning the company from federal leases in the Gulf -- will be at odds with the government’s agreement to use BP’s leases as collateral for the fund,” the group wrote.

The group said the deal would also ensure BP had a “robust presence in offshore drilling” even though the company has a bad environmental and worker safety record.

“The administration might be less likely to address those problems if it means the company can’t continue its profitable business-as-usual style,” the group said. (Reporting by Tom Doggett)