Tuesday, June 22, 2010

Poor BP

The latest inanity coming from the BP oil spill fiasco was US Representative Joe Barton R-Tex apologizing to BP because of how unfairly the company has been treated by the US government. He called the $20 billion compensation fund demanded by Obama a shakedown, and said even if they were wrong, it wasn’t right for the government to demand the money. The Repug leadership quickly moved to disown his comments.

In the Exxon Valdez case, it took 20 years of legal wrangling to wrest a mere $500 million out of Exxon. A jury originally awarded damages of $5 billion but that judgment was easily overturned by a higher court. After all, five billion is practically 10% of one year’s profit. They did pay some compensation right from the beginning but nowhere, no how did it cover actual loses. There is no corporate weighing of right and wrong regarding legal culpability or claims against it, only a simple bottom line calculation. If the corpse thinks it can avoid a billion dollar judgment by spending $990 million on legal costs, that’s the track it works on.

David Cameron, UK Prime Minister, has cautioned Obama against bad-mouthing BP too seriously out of concern for the corpse’s stockholders and pension funds who hold its shares. Others are comparing it to Britain bashing even though BP is no longer officially British Petroleum, only BP.

I’m not totally without sympathy for pensioners who lose out as a result of BP’s reckless behavior and its casual, even malevolent, attitude toward safety regulations, but that’s the name of the game: investing is speculating, which is just barely, if at all, above gambling.

A lot of people have gotten the idea, from the corporate philosophy that’s been ingrained into the Western mindset that investing is fool-proof and as good as money in the bank. Conservatives have rightly understood that bringing lots of people into investing through pension funds and such, essentially tying them into the capitalist structure, would change their political attitude. What they didn’t count on was stocks going down; they’re only supposed to go up, you know.

It’s too bad so many large developed economies have lowered their interest rates to near zero in frantic attempts to stimulate growth, because that has left many people thinking they had no choice but to invest rather than just put it in the bank.

So why not invest in BP? It’s one of the world’s largest and most stable corporations, it’s always profitable and always pays good dividends. Well, if you were an astute investor, one not totally blinded by the hype, you’d look at BP’s safety record before you put your money into it. If you did, you’d find that BP not only has a sorry record of spills and explosions, but they’ve been cited by the US government for safety violations far more than any other oil company. In the last 3 years BP has received more than 700 citations for flagrant safety violations; all the other big oil companies combined received just 9. Moreover, many of those 700 also had the terms, ‘willful’ and ‘egregious’ attached to them.

The US supreme court has ruled that corporations are persons before the law with all the rights of individuals. Nowhere have they specifically ruled that corporate persons are allowed to get away with murder, but that’s the way it works. Flagrant, willful, egregious safety violations must be the corporate equivalent of drunk driving, yet a human person convicted of drunk driving causing death would be taken off the roads and imprisoned pretty damn quickly.

Not a corporate person, they just get paltry fines levied against them that are cheaper to pay than following safety rules and since the bottom line rules for them, they’ll break the rules as long as they can get away with it. It seems to me that the government in this case is almost as guilty as BP. Corporations are like young children: You can not expect a corporation to act responsibly without strong rules and serious consequences for not following the rules any more than you can expect a two-year-old to know right from wrong; they have to be taught, guided, restrained and disciplined.

Getting back to BP’s gusher, it’s still at least 2 months before one of the relief wells meets its target and the flow can be stopped. However, there’s no guarantee that will happen; both might miss the target. BP could have tried digging three or four relief wells at the same time for better odds but they cost $100 million each and the sea above the well might get quite crowded with that many drill ships working at the same time. So they’re crossing their fingers.

Meanwhile the worst case scenario is so terrifying it disheartens even a doomsdayer like myself. It postulates that BP may never be able to stop the gusher, but rather it’ll continue to flow until the reservoir is emptied of its billion plus barrels of crude. This comes partly from shoddy work to the point where the well was weak and vulnerable to begin with and is now losing its integrity. Leaks are appearing before the blowout preventer and in general the well is eroding quickly - because there are always abrasives in the crude - from the oil gushing out at very high speed and pressure. This scenario may be way off the mark but considering how little anybody really knows about these things, as good as a lot of other possibilities.

In order to stop the flow the relief well has to hit the gushing well far underground, very close to the reservoir, and it has to happen before the well totally degrades; that is, while the well is still intact, otherwise there’ll be no way to ever stop it and this spill will become a nightmare of biblical proportions – literally decades of oil spewing out and contaminating everything.

(If you want to delve into this fiasco on a more technical level I highly recommend adropofrain.net. For really technical stuff theoildrum.com is an excellent resource. I can understand the technical stuff, but only to a limit.)

It’s a race against time. If BP loses, it will certainly cease to exist and may well go down in the annals of corporate infamy as the worst of all time. You can bet that BP is already investigating splitting off its American operation so it can limit its liabilities and go bankrupt without taking the whole company down, which is why Obama’s extraction of $20 billion from BP was a very wise move.

If you are one of the shareholders of BP, pensioner or otherwise, who is due to lose your shirt, I’m sorry but that’s the way the game is played: You gambled, you lost. Which is nothing compared to what the Gulf has lost.

This ongoing eco-tragedy however has not stopped the US government from issuing deep

water drilling permits in spite of Obama mandating otherwise. It also has not stopped Republicans from demanding that Obama not enforce a moratorium on new drilling permits. What the heck, it can’t happen twice in the same area, can it? Those mendacious idiots can’t even wait until the full story is told and serious adjustments are made to drilling rules and procedures that might make another blowout less likely. Drill, baby, drill.

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