BP’s U.S. political risk goes well beyond rhetoric

June 14, 2010

BP’s name is so besmirched in DC that restoring its old Anglo-Iranian Oil Company moniker could hardly worsen things. It’s partly political posturing, but there’s a real threat too. Venezuelan-style expropriation may be a stretch, but Uncle Sam could still hurt the British oil giant badly.

The typically even-tempered President Barack Obama has talked about finding some “ass to kick,” and BP investors, who have sold off the company’s shares sharply, are right to worry. Among the latest ideas aired by U.S. officials are making BP pay oil workers laid off as a result of the broad drilling moratorium imposed by the government, and forcing the company to suspend dividend payments. Some of these proposals test the limits of the law. But Uncle Sam has plenty of real sway over BP.

Until its Gulf of Mexico fiasco began nearly two months ago, BP held pole position in America’s oil industry. Building on its late-1990s deals to buy Amoco and Atlantic Richfield, it had become the largest producer in federal waters in the Gulf. With $2.2 billion of annual supply contracts, it is also the top fuel supplier to the American military. Citigroup reckons nearly half BP’s value is, or was, attributable to its U.S. business.

Stripping BP of existing production leases may be difficult legally. Once the oil starts to flow, these run in perpetuity and have very restricted termination clauses — though lawyers in Houston are trawling for small print the government might invoke. Perhaps more likely is to use BP’s lamentable safety record to bar it from future U.S. production.

While Exxon Mobil got religion on safety after the Valdez disaster 1989, BP seemingly did not. Even after its lethal 2005 Texas City refinery explosion, two BP refineries accounted for 829, or 97 percent, of the 851 “willful” violations found by government safety inspectors in the U.S. refining industry between June 2007 and February this year, according to the Center for Public Integrity.

Then there are those Pentagon contracts, which must be at risk. All this presents a long-term threat beyond the costs related to the current disaster. Despite BP’s financial strength, it may eventually make BP’s U.S. operations, and indeed the whole company, candidates for possible sale — and associated name changes that just might consign memories of BP, as well as Iran, to the seabed.

Comments

The BP brand will certainly have to die in North America. Otherwise the US government should pick out a number that they think BP could survive (without bankruptcy). Say it is $20 billion. Then set up an escrow account and cap the liability at that amount. Let the administrators of the escrow fund handle the inevitable swindles and lawsuits. Let BP get on with the job of stopping the oil leak and building a new corporate culture.

Posted by AmericaninCan1 | Report as abusive
 

Good presentation of the different choices except one thing that you fail to imagine: the qualification of a crime that could lead to hold BP CEO on the american territory and ask him for the famous caution to prepare freely his defense.
Obama is going to make a declaration in some hours. The report of your colleague (http://uk.reuters.com/article/idUKTRE65 73FD20100614) points out the context of the next election of november? “There ain’t much he can say. We’re all commercial fishermen and we can’t go out and make a living,” he said in blazing heat in Venice, Louisiana.

Posted by meleze | Report as abusive
 

BP has to go. It’s very clear by now that this company cared nothing about the dangers of oil exploration/production. Once a hurricane picks up that oil, BP will be responsible for singlehandedly casting a blight across the Gulf states. Perhaps even our eastern coastal states will suffer. I’m sure it will be the darkest, most unwelcome hurricane anyone has ever seen.

And to think that this destruction would be unleashed by a NATO ally. Way to represent your country BP. Get BP out of the picture and let our own expert salvage folks and engineers take over and get the job done. There are many respected Americans in the field that understand the problem and can solve it given the resources. Get them together. Get them what they need. And get BP out. They aren’t doing anything useful anyway.

Posted by Benny_Acosta | Report as abusive
 

Benny…where have you been? US experts and scientists as well as staff from all other major US oil firms are already providing advise to BP. BP has mobilised all its available equipment to stop this leak and to reduce any damage by the already spilt oil. If all these experts haven’t already managed it do you think asking BP to leave is going to make it better? I am sure BP would be quite happy to just leave. It would save them helluva a lot of hassle and money, but, no, they are responsible enough to stick it out there until the damage is reduced as far as possible.

One more thing…what’s the point of having a separate escrow account for claims to be administered by an independent US civil service agency. BP has already been settling all claims on a 48 hr turn around time basis. I doubt any government agency would be that quick!

Posted by Siliaz | Report as abusive
 

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