How Hard Will the Spill Hit BP?

Will British Petroleum pay for this mess?

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Wildlife in the path of the Gulf oil spill are clearly going to pay for human error: will British Petroleum, the company using the oil rig, pay too? That's a question environmentalists, investors, and taxpayers want answered. Of the handful of companies plausibly connected to the disaster, BP is the one the public and the media see as most directly responsible. The company knows this, and has said it will cover the costs of cleanup. But can taxpayers rest easy that BP really will pick up the bill? Investors in the oil giant have their own concerns about the company's financial outlook, while environmentalists wonder whether BP will be hit hard enough to make it feel some of the damage the spill inflicted.

  • A Multi-Front Disaster "This Gulf oil spill is only getting worse and worse than expected [for BP]," observes 24/7 Wall St.'s Jon Ogg. BP, as well as some of the other companies involved, have been hit with a class action lawsuit over the spill, while "BP's US listed ADRs were at $60.00 just on April 21, and by Friday's close the stock went out at $52.15 and it traded about 60 million shares." It has been a hard drop.
  • BP's Insurance Situation One of the key questions, given the potential cost of this disaster for BP, is how it's insured. "BP owns its key insurance company, Jupiter Insurance LTD," reveals Business Insider's Gregory White, looking at SEC filings. The company has probably managed, using a "special purpose vehicle," to retain privacy regarding assets and liabilities."The company does have to have public insurance on some of its properties. This insurance is suspected to be through Lloyds of London, and be related to ploss of property and liability claims." He wonders, though:
... through all these less-than-public insurance arrangements, BP's stock is tanking. Maybe the market knows something about BP's insurance liabilities its filings don't reveal?
  • May Get Harder to Insure Deep-Water Platforms, writes Nicole Gelinas at the National Review. If that's the case, she urges the government not to "interfere with this market signal ... If deep-water projects become even more expensive or economically impossible, that's a market sign that the price of oil needs to be higher, possibly much higher."
  • Responsibility for Spill Might Be Capped, notes Newsweek's Daniel Stone. "Current federal laws designed for these situations limit non-clean-up liability of the offending company at $75 million, a hefty sum but no where near the full cost, easily into the billions, that some analysts are projecting may be required for a spill of this magnitude." These laws could be changed, but "it's still a valid question of whether it's fair to legislate retroactively, essentially moving the goal posts in the middle of the game."
  • BP's Green Image Destroyed  BP's green campaign--which included making the new tagline "Beyond Petroleum"--"paid off for the company," writes Kate Sheppard at Foreign Policy. "A customer survey in 2007 found that BP had by far the most environmentally friendly image of any major oil company." The Gulf oil spill, therefore, has "wiped out years of ad spending for the company." (She also points out, as do others, that "it has also highlighted how disingenuous much of that advertising was.") Lobbying money spent "convincing political leaders that offshore drilling is clean, safe, and environmentally friendly" is also lost.
This article is from the archive of our partner The Wire.