Can BP Survive This? Not Likely

To all you good folks in the Gulf states who are taking a financial beating and expect BP to make you whole, good luck.

And good luck to the cities, states and federal government who expect BP to pay for the cleanup and other costs created by BP’s gross incompetence.

Exxon, a much bigger and richer company, left a trail of cost and wreckage in the wake of the Exxon Valdez. Don’t expect BP, a company notorious for its indifference to safety and environmental laws and regulations, to suddenly emerge as a model citizen—-particularly with so much money is at stake.

If fact, don’t expect BP even to survive this calamity at all. More likely is that BP will file for bankruptcy and shed whatever obligations it can ditch in court. Then, look for some suitor to absorb a cleaned up BP balance sheet and feed off the tens of billions of barrels of oil reserves remaining in its portfolio.

An industry insider tells me the buyer of BP won’t be Exxon or Shell, since such a deal wouldn’t sit well with anti-trust enforcers. Think more along the lines of Brazil’s Petrogras—a rich and growing company that is bound to covet BP’s properties.

And add to the list of companies that will be taken down by this disaster lots of small drillers and other oil related companies that no longer will be able to afford insurance because the magnitude of the Deepwater Horizon costs already are driving premiums sky high.

Wall Street apparently isn’t seriously considering the possibility of a BP bankruptcy. Of 17 financial analysts who follow the oil and gas industry most are encouraging their clients to buy BP stock. They look at the current price, now down about 40% since the Deepwater Horizon blowout, they calculate the $5 billion BP netted in the first quarter, and the $17 billion it made in 2009, and the quality and quantity of the company’s oil reserves and they see a bargain of an investment.

This is how it often goes with people whose only goal is financial profit and whose reading material is predominantly numbers, not words. Many analysts were hawking Enron’s stock on the way down, too.

But before this is over, BP is likely to owe the federal government up to $4,300 a barrel for every one of the tens of millions (maybe even hundreds of millions) of barrels gushing into the Gulf. That’s the penalty Washington’s permitted to extract under the Clean Water Act.

BP also owes the government royalties on every gallon of gas pouring from the uncapped pipe. That explains why BP is so reluctant to make an honest estimate of the flow rate.

All this before clean up and compensation costs. How much compensation? The tourist industry in the affected states (and this number doesn’t even include Florida) is estimated at $20 billion a year. The Gulf seafood industry generates another $20 billion a year. It may be years before these industries recover.

And then there’s the matter of cleaning the beaches, the marshes, the fresh water areas—-a number that would compound quickly in the event of an untimely hurricane, or the escape of oil to the U.S. east coast.

Naturally BP will fight to limit its exposure. Exxon spent 21 years in court after the Exxon Valdez disaster and managed to whittle its payment to affected fishermen and other injured parties down from $5 billion to $500 million. But the Exxon Valdez experience toughened the penalties for everyone coming after it. And the Gulf states will be able to apply considerably more pressure than did far away Alaska.

Furthermore, Exxon’s safety and environmental record pre-Exxon Valdez looks pristine against BP’s. In recent days the investigative news service ProPublica has compiled a string of investigations aimed at BP for a wide variety of incidents during the past few years.

The charges include intimidating workers who raised safety or environmental concerns, falsifying inspections of fuel tanks at a Los Angeles refinery (inspectors were forced to get a warrant before BP allowed them to check the tanks), failure of an emergency warning system before the deadly 2005 Texas City refinery explosion, dangerous pipeline maintenance failures in Alaska, and others.

So don’t expect BP to do what its president, Tony Hayward says it will do. Hayward will be long gone before it’s time for BP to put up real bucks to right its wrongs. And the company’s culture shows little evidence of having been hit by anything close to pangs of conscience over this. Remember, BP’s first act after the drilling rig exploded and sank was to send in a platoon of lawyers to persuade fishermen to trade their right to future claims for an immediate $5,000 check.

The choices here are stark. The U.S. either needs to do what former Labor Secretary Robert Reich suggests and take over the company and its assets to recover public and private costs, or to watch helplessly from the sidelines while issues get litigated for years, BP is ordered to pay gigantic sums and avoids them through bankruptcy.

That’s the money side of it.

Then, there’s the question of accountability, which we’ve seen so little of lately. Government officials can lie us into wars and suffer no retribution. Wall Street moguls can gamble away investor and depositor money and keep their jobs, with bonuses, no less. How about one time, this time, bringing to account those responsible for devastating so much property and so many lives? How about doing what legendary frontier Judge Roy Bean was fond of saying: “Give ’em a fair trial. And then hang ’em.”

I’m not suggesting hanging. But some jail time might focus the attention of others in finance and energy about having respect for something more than the next quarter’s stock price.

(Joe Rothstein can be contacted at


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