An Economic View of BP, the Oil Spill and the Gulf of Mexico

Posted: July 3, 2010 in economy, environment, oil spill
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To quote Fred McCallister of Allegiance Capital Corporation while on CNN earlier this week, “BP is doing what’s in the best interest of BP and its shareholders.”  This should not come as a shock to anyone but it’s nice to actually hear someone say it on a national news broadcast.  Let’s take a deeper look at what that really means though.

The size of the spill determines the fine

 This explains why BP initially downplayed the size of the leak and has consistently underestimated the number of barrels per hour pumping out of the broken pipe.  British Petroleum already faces up to 14 billion dollars in civil penalties, payable under US environmental law, assuming the leak is plugged in August.  The size of these fines are directly linked to the size of the spill which is quickly becoming the largest in US history,  with BP liable for over $4,000 for each barrel spilt.  So in a nut shell, the fewer the barrels of oil reported to have been spilled, the smaller the fine.

Spreading out oil over time allows amortization of costs

A disturbing idea but one that seems to have merit, the use of dispersants sinks the oil so that it does not come to the surface or end up on beaches immediately, instead it will sink and wash up over time on the beaches as tar balls, thus increasing the size of the spill over time instead of all at once, read more at:

Given the financial advantage to using dispersants it is no surprise that BP refused to stop using the most available dispersant even when the EPA told them to stop.  British Petroleum is not worried about toxicity or long-term environmental impact, what’s important to BP is their bottom line, you can read more at:

Finally, the dollar figure for BP will escalate as: private citizens sue over health issues; environmental groups sue on behalf of the environment of the gulf; fishers sue over the damage to fishing grounds; and tourism and other industries sue for lost business.  It is not inconceivable that BP is looking at 60 – 70 billion dollars in fines and law suit damages; given that the company’s profits for 2008 and 2009 totaled approximately 40 billion dollars, this is a company in trouble.  Were the fines and lawsuits to happen all at once they’d be done, just one more reason to do what they can to work on making this all spread out over time.

In the end it’s simple, BP will only do what it has to do and will focus on doing what’s best for BP and to hell with the environment, the animals and people of the Gulf of Mexico.


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