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