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September 03, 2010

BP Threatening Congress: Ban Us From Drilling, and We Won’t Pay Oil Spill Damages

Posted in: Uncategorized

BP is basically saying here, in the vernacular, “Nice escrow account you’ve got there, would be a shame if something happened to it.”

BP is warning Congress that if lawmakers pass legislation that bars the company from getting new offshore drilling permits, it may not have the money to pay for all the damages caused by its oil spill in the Gulf of Mexico.

The company says a ban would also imperil the ambitious Gulf Coast restoration efforts that officials want the company to voluntarily support [...]

“If we are unable to keep those fields going, that is going to have a substantial impact on our cash flow,” said David Nagel, BP’s executive vice president for BP America, in an interview. That, he added, “makes it harder for us to fund things, fund these programs.”

This is, in one sense, a tightwad company who destroyed an ecology, endangered a whole region and doesn’t want to fund the cleanup. In another sense, this was pre-ordained when the negotiations on the escrow account used future drilling in the Gulf as collateral:

The Obama administration and BP PLC are close to a deal to use future revenues from the oil giant’s Gulf of Mexico operations to guarantee its $20 billion cleanup and compensation fund, a move that would give both sides an incentive to continue production in the Gulf, scene of the U.S.’s worst-ever offshore oil spill [...]

BP has said it expects to be able to make the required payments to the $20 billion fund through its ongoing operations and asset sales. However, the administration wanted security in the form of collateral in the event that BP couldn’t meet its obligation due to financial or legal problems.

The issue of collateral is the last detail to be ironed out. It is a prickly political issue because it could make the administration and BP partners of sorts in developing the Gulf.

Such a deal could provoke a backlash on Capitol Hill, where some lawmakers are moving to bar BP from operating in the Gulf. Legislation approved by the House of Representatives in July would effectively prohibit the government from issuing new offshore oil leases or drilling permits to the oil company by adding a roster of requirements BP couldn’t satisfy.

The House has already passed legislation to this effect, in the CLEAR Act. You can bet that the Senate will respond to this threat by taken the ban on BP in the Gulf out of any legislation. But BP only has 11% of their drilling operations in the Gulf, to say nothing of their other multiple revenue streams in refining and delivering gas to customers. The notions of an impact on their cash flow are overblown (I really question the Oppenheimer report in the story that suggests Gulf drilling makes BP $5-7 billion a year).

BP claims that this threat only accompanies additional funds above and beyond the escrow account; “I am not going to make a direct linkage to the $20 billion,” a spokesman said. But if drilling in the Gulf is tied to that account, it’s all basically the same thing.

Maybe the best lesson to take here is not to get involved with scoundrels who will destroy the environment with impunity and then threaten to take away cleanup funds if you don’t let them potentially do it again.


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