How BP Could Go Bankrupt

BP clean-up efforts have already run to $1 billion, and the company's stock has lost a third of its value since the Deepwater Horizon drilling rig explosion. But could the oil spill send BP all the way to bankruptcy? Maybe. Texaco showed the way.

In 1987, Texaco was forced to file for Chapter 11 because it could not afford to pay a jury award worth $1 billion to Pennzoil. That award had been knocked down by a judge from a whopping $10.53 billion. (Pennzoil successfully sued Texaco for "jumping" its planned merger with Getty Oil, in part, by moving the case to local court near its headquarters. The jury awarded triple damages.)

Imagine the BP case playing out in a Louisiana courtroom, against the backdrop of an oil-choked local economy, high unemployment and an angry public. How high can you count?

Under the Oil Pollution Act of 1990, BP's liability for economic devastation -- above the cost of the cleanup -- is capped at $75 million, a number Mr. Hayward has already said he plans to blow through. But if BP is found to have violated safety regulations, which seems likely, that cap becomes irrelevant.

Let's take the safety regulations variable out of the equation. What happens if the liability cap for economic damages disappears entirely? The Senate has dithered on uncapping the spilling penalty, but the White House has come out as firmly behind the idea of unlimited liability for oil spillers, according to this Sam Stein piece in HuffPo.

No guarantee this goes anywhere, especially considering the impact that bankruptcy could have on the jobs associated with offshore drilling in the Gulf. Sen. Robert Menendez has already proposed a bill that would raise the liability cap for oil spills from $75 million to $10 billion, but some senators are balking. Others think the measure could be attached to an energy bill later this summer (although that bill is by no means a cinch), but a White House endorsement might increase the likelihood that the liability rule finds a home in another piece of legislation this year.