Friday, June 11, 2010

As BP Stocks Sink, BS Rises While Victims Seeth And Wildlife Die

So much of the BP oil spill damage in the Gulf of Mexico is predicated on educated guesses but the speculation I consider most relevant in the long-term is whether the British-based conglomerate will declare bankruptcy for its North American division.

At first blush, the idea appears preposterous because it would involve shutting down or selling all its drilling and contractual obligations to the U.S. Defense Department.

BP is the world's fourth most profitable industry and Britain's second. It has a legal obligation to pay dividends to its shareholders and by a 1990 idiotic U.S. law to clean up any spills from its drilling accidents and an 1851 maritime law limiting its financial obligations by today's calculations at $27 million.

I contend the 1990 Oil Spill Pollution Act is idiotic not so much it places responsibility on the polluters to clean up the mess but caps its liability at $75 million when, again that speculation factor, damages may reach well into the billions.

Here's two paragraphs from Friday's New York Times:

As investors have fled BP stock over uncertainties about the company’s future and its ability to pay what it will end up owing, BP has lost nearly half its market capitalization since April, and its bonds are now trading at junk levels.
Credit Suisse estimates the cleanup costs could end up at $15 billion to $23 billion, plus an additional $14 billion of claims. But analysts make much of BP’s financial flexibility: it had net profit of $17 billion last year alone.

BP is self-insured. It along with other oil companies drilling in America contribute 8-cents per barrel to a fund that pays for oil cleanup. That fund is estimated at $1.5 billion. Since its enactment nearly 20 years ago, that tax levy has been added to the price of gasoline and natural gas consumers pay at the pump.

Rather than speculate, I will question. Is BP tapping into it to pay claims by fishermen, all other related business victims including the U.S., states and local responding governments?

The House has passed a bill that would increase the 8-cent tax to 34 cents per barrel to go into the pollution trust fund to pay for future spills.

Senate Democrats propose a 41-cent tax opposed by Republicans. The Senate Democratic bill would raise $15 billion over 10 years. Republicans counter that the money is attached to unemployment benefits, jobs for youths and other programs in what amounts to a shake down to reduce those program costs to $78 billion over 10 years thereby depleting the future oil cleanup funding pool.

On the liability issue which would be retroactive, the House wants to increase the $75 million ceiling to $10 billion or more. Two Senate Republicans have put a similar measure on hold. I'll leave it to others to speculate on the devious motives involved there.

Several weeks ago Robert Reich, a University of California, Berkeley, professor and former Clinton administration Secretary of Labor, was excoriated for suggesting the government place BP in some form of receivership.

Reich listed six reasons of which I will repeat only those I think make sense.

The prime reason is putting the feds in charge of protecting America's assets where as BP' is more focused on business decisions. The analogy is this:

No president would allow a nuclear reactor owned by a private for-profit company to melt down in the United States while remaining under the direct control of that company.

The other reason would clarify a chain-of-command and reorder priorities from BP contractors who have been sluggish setting up and properly maintaining the oil spill reaching the shorelines of the Gulf Coast.

What Reich was saying leads to a question I have had from the beginning of what is now know as our nation's worst environmental disaster.

If local governments through FEMA and other agencies developed a plan of defense in case of a disaster and had a warning period of five to six weeks before the spill reached their shores, why were not every antiquated but minimally effective protection devise such as booms and skimmers installed?

I think a partial answer is in the 1990 Oil Pollution Act putting the oil polluter in charge and the government agencies scared to death to assert themselves and do their jobs for fear of down-the-road lawsuits.

It is a pox on the feds and the oil industry for not requiring or spending a dime on new innovations to cleanup oil spills since those that were developed shortly after the Exxon Valdez of 11 million gallons of oil in the Alaska tanker accident.

Instead the research billions were directed at drilling in deep water  at depths of two miles beneath the oceans' floor, in deed, an engineering triumph. But no contingencies were made in case of an accident the size of the Deepwater Horizons exploratory well.

No fool would design a car without brakes but after years of deep water drilling in the Gulf without a major accident, the thought of such a thing was not in the cards. It was as if the Mexican Pemex drilling in 61 feet of Gulf waters that took nine months to cap never happened in 1969-70.

One of the reasons BP has been sandbagging and low-balling its estimates of the leak now estimated at 30,000 barrels per day is that by terms of the Clean Water Act they will be fined on a per-barrel formula which could reach into BP's deep pockets to the tune of billions of dollars in fines and penalties.

I am at a point of not believing a word BP says. Just going on memory, BP in recent days has said proceeds of the oil collected in vessels at the sunken platform site will be donated to victims and special grants to academics studying new methods to clean up and disperse the toxic spillage.

Next we learn the containment vessel filled so rapidly BP  had to call in another vessel from the North Sea to collect the spillage siphoned from the jerry-rigged cap 5,000 feet below. The ship won't arrive until next week and the collected oil is being burned in total until then or until some other excuse is offered.

The new spillage estimates have been taken over by a group of scientists called the Flow Rate Technical Group and their margin of error is +/- 5,000 bpd.

Ira Leifer, a researcher at the University of California, Santa Barbara, and a member of the flow-rate group, said the new figures confirmed a suspicion he had developed, based on looking at satellite data, that the rate of flow for the well was increasing perhaps daily since April 20.

“The situation is growing worse,”  Leifer told the New York Times.

When Coast Guard Adm. Thad Allen took charge as the government's incident commander in early May he said the amount of spillage was irrelevant until it was stopped.

He was right and wrong, simultaneously. Where he was wrong was not taking a worst case scenario and forcing BP to adequately launch defensive measures along the coastline to capture the slick. I'm speculating, but I fear the go-to-admiral who did a credible job after Hurricane Katrina was conned by BP that the chemical dispersants they were applying at the source of the leak and on the surface would mitigate the damage.

When I hear President Obama and top government leaders will meet with BP board members next week to seek assurances BP will pay it claims to victims before dispersing dividends to its shareholders, I can only laugh as it is just another media dog and pony show.

It is as meaningless as Speaker Nancy Pelosi and Rep. Edward Markey (D-Mass.), chairman of one committee investigating the spill, suggesting that the government would take action to block the dividend payments if necessary.

“This company, I think, will stay solvent,” said Markey.

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