Earlier today I tried to get a handle on BP’s total liability for the Gulf oil disaster, given the new estimates of the spill rate. Street Insider actually came up with a higher figure than I expected, using a thumbnail metric from a Goldman Sachs per-barrel estimate:
If 40,000 barrels per day has been leaking from the well, then there could be nearly 2 million barrels of oil in the Gulf of Mexico. This would put BP’s estimated liability at $80 billion, based on an estimated from Goldman Sachs analysts that it will cost $40,000 per barrel for clean-up, litigation and other costs related to the spill.
Since a containment cap was placed on the gusher, BP said it has collected nearly 100,000 barrels and is currently collecting at a rate of about 15,000 barrels per day. This would put the amount continuing to spill into the Gulf at about 25,000 barrels per day.
If it takes another 50 days, let’s say, to drill the relief wells, we’re talking about another 1.25 million barrels. And using the Goldman metric, you’re up to $130 BILLION dollars in cost. BP currently holds net assets of around $105 billion.
And I would assume that the Goldman estimate of $40,000/barrel is under current law, not factoring in potential changes to the law – like Patrick Leahy’s Environmental Crimes Enforcement Act, or a retroactive lifting of the liability cap (though the Constitutionality there isn’t clear-cut), or some sort of Civilian Conservation Corps to clean up the region (federal legislation may be soon in coming on that front) or what Douglas Brinkley discussed with Anderson Cooper last night, essentially a Tennessee Valey Authority-like project for the Gulf region:
BRINKLEY: Yes. Yes.
And it’s one of the reasons why the president is not talking to Tony Hayward. And they are going to come out with a large Gulf recovery act, because the oil and gas industry has been dredging. We have disappearing barrier islands. For 40 years down there, it’s abused the wetlands.
This is a turning point. There is an appetite on Capitol Hill for Gulf recovery act. The Mississippi River is going to have to be redirected into the marshlands. And BP and Transocean and other, you know, operations, Cameron, other companies are going to have to pay up to $10 billion and $15 billion for breaking national acts [...] in the next year or two, this will be, for President Obama administration, I think something a Tennessee Valley Authority or a Saint Lawrence Seaway under Dwight Eisenhower, a major public works act, with BP…
(CROSSTALK)
BRINKLEY: … the bill.
So that number could expand, with BP – and its co-conspirators, let’s not forget Transocean and Cameron and even Halliburton in this – on the hook for essentially the entire worth of its company.
UPDATE: Chris Hayes of The Nation has a pretty good response to all of this, basically saying that BP, armed with a flotilla of lawyers and dealing with a corporate-friendly judicial system, will basically escape unharmed. That may well be true, but it’s crucial that the variables we control – how much oil has spilled, all the relevant statutes and crimes applicable – create a perception of liability, because in the business world, perception often becomes reality.



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What would be REALLY interesting is the amount of insurance BP has against such a problem and who is selling that insurance and how much is being laid off via a cds.
Fascinating interactive chart showing relationships among corporations, individuals and other entities centered around the “spill”. Just double-click on a box (e.g., BP) and watch the charts explode into myriad links.
We are, of course, collecting royalties in cash for that recovered oil, aren’t? Not accepting payment in crude as we did under Bush?
Time value of money saves BP in this case – the payout/cleanup will be over 10 years – the litigation over the fine alone is a 5 year process
Meanwhile BP earns 20 billion or more a year – it means no dividends for those Brit pension funds for 5 years, but I find it hard to cry over that given my own retirement destruction that resulted from investing in those “high dividend and safe stocks” mad money pushed called “bank stocks”.
They are prolly insured with AIG./s
I’ll be astonished if they are ever made to pay even 0.1% of that
I think their subsidiaries – the US government and the Exchequer – pay their premiums.
bp had better not escape unharmed. its exactly that kind of outcome that perpetuates the atmosphere of corporate irresponsibility that caused this in the first place.
not to mention the giant fuck you message the gov’t would be sending to those harmed by bp.
Expect them to file bankruptcy soon and to hive off the American or Gulf operation as a separate entity which will be drastically under capitalized. Anybody who believes that they are really going to pay up has not been paying attention for the last 30 years.
They already did hive off American Ops
I am with Chris Hayes on this. Not only will BP litigate. The Obama and future Administrations will almost certainly let them. The US government holds BP’s existence in its hands. If it went for a criminal felony indictment and conviction, that would kill the company. So BP would have an enormous interest to cut a deal advantageous to those living on the Gulf. But will Obama the supreme corporatist go after BP or will he just talk about going after the company?
Brilliant BP self insured to save money.
“They have about a month before they declare Chapter 11. They’re going to run out of cash from lawsuits, cleanup and other expenses. One really smart thing that Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup. But there isn’t enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this my guess is that they’ll panic and go into Chapter 11.”
From: “The Gulf Coast oil spill’s Dr. Doom”
http://money.cnn.com/2010/06/09/news/companies/simmons_gulf_oil_spill.fortune/index.htm
Far be it from me, an Aussie, to accuse the US Government of double standards, but the vehemence with which BP (name changed from British Petroleum 12 years ago, Mr Obama)has been villified for the Gulf of Mexico disaster stands in stark contrast to the US response to the Union Carbide stuff-up in Bhopal, where US ececutives were, apparently, whisked away from the Indian authorities along with the former boss, Warren Anderson, who has an outstanding arrest warrant for skipping bail in India and whom the US authorities refuse to extradite.
It seems that having a British company in the frame to whip is a blessing in in disguise for US authorities, who after all, were responsible for the oversight of these voracious, devil may care oilmen and their mates.
It’s fundamentally stupid to fine corporations. It’s also stupid to promulgate the BS that BP’s shareholders are liable for this mess, because they are not.
Corporation are owned by shareholders, who are not liable for the corporations’ behavior. That’s the purpose of limited liability. Keep up this foolishness, and you will scare ever shareholder, institutional or individual right out of the stock market.
Actually commit to confiscate the shareholder’s equity because of individual negligence, and the stock market will hit zero.
It is also an unconstitutional confiscation of property rights to punish these shareholders for the liability incurred by the corporations’ officers.
Punish the officers, yes. Punish the shareholders? Why?
Who are the real guilty here? Look in the mirror. Does it include the American consumer who consumes 25% of the world’s energy with 2% of the world’s population? The loss of Carter’s direction withe the Republican sunshine bullshit of the ’80s?
If it weren’t for the last 30 years of these policies then BP and others, and the others have committed equal environmental crimes, Chevron in S America, Shell in Nigeria, Torrey Canyon, Amoco Cadiz, to name some, in the pursuit of unsustainable greed and consumption.
Wake up. Look in the mirror. Look in your Garage. Can you see the problem? We have seen the enemy and it is us.
One always hears that BP is “self-insured.” Here’s an article that puts a little meat on that.
Seems that certain liabilities, afaikt those that are legally mandated for instance, are funneled through the captive insurer —but BP is fully liable if that insurer fails.
Furthermore, there are many completely noncovered situations for which BP is liable, like most of the ones involved in the Macondo Blow-out. Some might recall that one of the first visible figures of the Hayward shuffle* back in late April was the attempt to shove the entire thing off on the drilling company Transocean (gotta finda link), which is also the owner of the drilling rig “Deepwater Horizon.” That was probably because TO/DWH is insured by a group at Lloyd’s.
——
* qweryous has another, very dishy take in the comments over at EW’s.
A link to pdf and ppt versions of a presentation about insurance market impacts of the Macondo Blow-out. Lots of data, images, timelines, etc.
I could not get the link to fully function for me, but is there any reason we should accept this Goldman $40,000/bbl metric? Is this based on the Exxon Valdez? Did that cost Exxon $10 billion? And over how many years? The Exxon Valdez ran aground 21 years ago.
Well, if you are in Australia you are pretty far from me. You need always to distinguish between Obama’s rhetoric and his actions. The fact is that every federal agency in government has been acting as a handmaiden to BP: MMS, Coast Guard, OSHA, NOAA, EPA, FAA as well as the higher ups in the Departments of Interior and Homeland Security. Nor should we forget the interference Obama ran for BP sitting on the video of the blow out for 3 weeks.
Obama and Congress will leverage this into a tax payers bill.
BP will not pay a dime.
However, they MAY go broke and bankrupt from stock pricings alone.
And leave the taxpayers with the bill for the cleanup.
Again, a WH/Congress Bailout of Corps.
A good insurance Q&A that goes into the exposures of BP, Transocean, Halliburton, Anadarko, Mitsui, etc.
Edit: this link also makes reference to the dispute between BP and Transocean.
Matt Simmons, author of Twilight in the Desert, said in an interview this week that within a month it will dawn on BP that no amount of money in the world will clean up the Gulf and BP will panic and slip into Chapter 11 bankruptcy.
Did not the Fascist Supreme Court rule that corporations are like persons and have same rights as persons. If a person kills 11 human beings and creates a national emergency would not they be forced to pay with their life? So BP should belong to the U S taxpayers right now!
Eli is upstairs!
Accidents Will Happen
what is “unconstitutional” is corporate personhood.
Before immortal corporations we had charters giving the right to do business for a set number of years – and that is what we should have now. Corporate renewal after those number of years being based on performance during those years – and corporate death being the penalty for bad behavior.
America replaced the divine right of kings and class by birth with the divine right of money – and it worked until corporations became immortal people.
Your interpretation of the Constitution is not “original intent” but the conservatives on the Court find this “immortal corporations with personhood” the only area of the law where “tradition” is more important than our Constitution.
Their stock losses are already pushing them to it . . . yep.
Brilliant sarcasm there Synoia, “stupid to fine corporations”.
Fining corporations is one of the few threats to get management to do the right thing.
Even better is too put them out of business, which should be happening to a few drug companies real soon, since the fines did not get managements attention.
Hugh, I concur with your take on Obama in this tawdry business.
Rather than having a good close look in our own backyards for many of our current travails, it’s the unseemly zest with which we all seem all – including Aussies who have more than enough xenophobia to go around – too eager to nail with blame, any foreign or outside agency. Synoia at #14 addresses the point rather well, I thought.
I fervently hope that the engineers manage to stop this mess soon. Incidentally, we had a similar blow-out occur just to the North West of Australia recently and it took five attempts at drilling a successful relief well. That was in 500 feet of water. Good luck with 5000 feet!
I see no reason for the continued existence of these three companies.