Did BP outsmart Obama?

In Uncategorized on 24/06/2010 at 7:09 am

The British were once known as “Perfidious Albion”. They had a reputation of being devious and tracherous

Could this still be true today? (Note that many Iranians and Arabs today still believe that anything bad that happens today, is the result of British trickery: talk about soft power.)

It may be anything but a “shakedown.”

The more likely truth is that the White House may have actually helped BP by obtaining the oil company’s agreement to a $20 billion damage claims fund for the enormous oil spill in the Gulf of Mexico. The final details of this fund are still being negotiated by BP and the White House. But if BP negotiates well, this fund may permit the company to better manage a Herculean litigation process and reduce its ultimate costs.

From initial reports, the only notable concessions on BP’s part were twofold. First, BP explicitly confirmed to the White House that it would not argue to apply the $75 million liability cap under the Oil Production Recovery Act of 1990. Second, BP agreed to pay $100 million to compensate rig workers who are unemployed by President Obama’s six-month moratorium on drilling in the gulf.

After a more informed look, though, neither of these appears to be a significant concession. As Prof. Noah Hall writes at the Great Lakes Water Blog, “The $75 million cap does not apply if the companies have violated any federal safety or operational regulation (and it’s very likely that at least one minor safety violation will be shown).” In addition, the cap does not apply to any claims brought under state law. BP is simply acknowledging the legal reality with its admission that this cap will not apply and its liability will be greater.

Second, as The Wall Street Journal reported Monday, BP bargained to limit its voluntary compensation of the oil rig workers to $100 million after the White House requested fuller compensation. This is a relatively small amount for BP. Furthermore, BP can also try to offset this amount against any criminal and civil fines that are ultimately imposed upon it or argue that its generosity should be taken into account in setting any such penalty. (Peter J. Henning discussed these penalties at White Collar Watch.)

Of course, there is still the matter of $20 billion in payments to the fund. Even in this case, BP may come out a winner.

BP has managed to spread the payments over three and a half years. This allows the company to manage its cash flow over the period and avoid a significant shock to its operations. BP also states that “[t]he fund will be available to satisfy legitimate claims including natural resource damages and state and local response costs.” This effectively covers all claims, which appear to be rapidly climbing into the billions of dollars. BP has thus merely moved money to pay claims that it would have to pay anyway, and the company will no doubt negotiate to allow it to use these funds quite broadly.

BP will also receive back any money that goes unpaid — assuming there is any money left. (The company has acknowledged that $20 billion is not a cap on claims.)

NYT Article.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: