Tell me how I’m wrong
If BP is truly going to foot the bill to cover all the damages its inconceivably massive oil spill is causing, won’t that cost so much money that BP will go out of business?
I’m not an expert in economics, but the monetary liability here for BP is going to be gigantic. If they stay in business, it’s hard for me to envision them making a profit for decades, because their expenses will be so high from paying off the debt this disaster is going to incur for them.
It seems to me that there are three possible outcomes here for BP:
- BP attempts to pay for all the damage is has caused, and doing so puts BP out of business forever.
- BP pays for all of the damage it has caused by taking on a large loan, and doing so is so expensive that BP will not turn a profit for more than a decade.
- BP does not pay for all the damage it has caused.
I’m a betting man, and my money goes on outcome No. 3.
Am I being too cynical? Am I missing a possible outcome for BP?
Tell me how I’m wrong.
Comments
I don’t know how much they paid for cleanup, but Exxon somehow managed to stay in business after the Valdez oil spill.
The cost of the Exxon Valdez oil spill has been estimated at $9.5 billion. Exxon paid $1 billion of the $5 billion a jury required them to pay. It’s a famous case among those of us who believe certain aspects of our economy need more regulation.
I am sure a huge part of the cost will be covered by insurance, but not all of it, but of course there is the possibility of negligence, insurance just might not cover the accident at all in which case BP will no doubt go bankrupt.
Washington and oil are tightly intertwined; there will probably be some way for them to slip away from 100% accountability. Plus wouldn’t BP going belly up have drastic effects on Wall Street? When the Feds mentioned there would be a criminal & civil investigation the energy stocks fell rapidly… Just hoping it doesn’t cripple the U.S economy too severely in the long term…
Thanks for your comments, Keith and Scott.
If BP doesn’t get out of having to foot the bill (which wouldn’t surprise anyone), then taxpayers will essentially be bailing them out by taking on an expense that should have been theirs.
On the other hand, if BP *does* have to foot the bill, that puts it at risk of going under. But is BP “too big to fail”? If so, again it will be the taxpayers bailing them out…. See More
And yet, when some of us propose that we hire more regulators for such dangerous industries, we’re shut down on the basis that regulators cost too much taxpayer money and increase the size and expense of government. Uh-huh.
Interesting question, Daniel. But here’s the thing: BP is almost literally a cash cow. In the first quarter of 2010, they had a NET PROFIT of $5.6 BILLION dollars. Billion with a big, fat B. In one quarter.
They have a ton of cash and a ton of influence.
I’m not one for predicting future outcomes, let alone stock market movements in the short to intermediate term, but I bet there’s a reason that BP’s stock “only” dropped 42% from high to low in the 52-week trading period (compared to bank stocks that dropped 60-70% not that long ago) ….
The other issue is shared blame – BP may not be the only company on the line. Transocean Ltd (who leased the rig) and the maker of the failed blowout preventer (who I can’t think of) may also be on the line, even if the US Gov’t has said that BP will be the sole responsible party.
Those are some impressive financials, Jeremy. Thank you for adding that good information and insight to the conversation. It’s beyond my comprehension that any entity would have enough money to clean up a disaster as massive as this one, but it appears that BP (and Transocean Ltd?) just might.
Too bad the only dollar about BP has stated so far is $500 million (in yesterday’s USA Today) to “watch over the long-term impact,” whatever the heck that means.
Don’t forget Halliburton’s role in this. Transocean ratted them out to Congress for their faulty concrete work on the well. I assume they’ll bear part of the financial burden as well.
I’m sure there are others out there, but this whole mess just seems to be a red flag to me about the state of humanity. We’ve got the “Not in my back yard” mentality and it permeates our government, businesses and schools. Accountability must be practiced on a personal level before it will ever be a reality in Government or Business.
We have developed a level of connection and communication that has turned the whole world into a backyard for everyone. If we are not careful, we’ll be abandoning Earth for some other habitable planet because we were not good stewards of this one.