A Few Things Ill Considered

A + B = WTF??

A = $6.08 billion

B = $75 million


Profits for the single last quarter for BP were 6.08 Billion dollars. Under current US law, their total liability for non-cleanup and containment damages is .075 Billion dollars.

Would any free market supporters like to defend this thinly veiled example of corporate welfare?

See also Things Break for some early estimates of how bad the worst case scenario could get, including implications for the entire US economy.

Like Katrina, global warming did not cause this disaster. But also like Katrina, it is an excellent illustration of issues relating to risk management.

Oh yes, another intesting number: zero. That is how much BP pays in royalties for the priviledge of extracting a US taxpayer owned resource.

Comments

  1. #1 yoshi
    May 3, 2010

    BP doesn’t own the rig. Transocean does (and they own many many others). Since this isn’t BP’s fault why should it be liable? BP has stated they will pay for the cleanup while Transocean has stated it wants all the facts in before taking any action. Does that change the target of your outrage?

    In addition – BP’s 6.08 billion profit is only 5.83% for 2009. In contrast – Transocean’s profit margin was 27.53%. I’m not defending either – but so many people want to go after the big bad oil company by throwing out big numbers while not giving context.

    (Microsoft’s was 29.03% if anyone cares)

  2. #2 Jonsi
    May 3, 2010

    Yoshi, while I agree that Transocean is also liable, that will play itself out.

    Where I disagree is that BP is not at fault. That is pure BS, and anyone in the oil patch knows it. BP was still the operator of the rig, even if it had mostly Transocean crew. Each day’s (really, hour’s) drilling activities are planned for and directed by BP. BP is responsible for certifying the integrity of all safety equipment, including the blow out preventer. BP personnel are on board directing operations. If at anytime BP observed any unsafe practices by the drilling crew or any unsafely maintained equipment, BP IS REQUIRED BY FED LAW to shut down operations.

    Sure, it is possible that they did everything correct, and that someone from Transocean acted solely negligent. Right now, we just don’t know. What we do know is that BP was responsible for operating the rig and vetting for its safety; therefore, they are at fault.

  3. #3 MattXIV
    May 3, 2010

    The limited liability is the flip side of the creation of a trust fund that the oil companies were forced to pay a per barrel tax to under the Oil Pollution Act of 1990 in response to the Exxon Valdez spill. Free marketers aren’t any more supportive of this crap than the GM bailout and other examples of the goverment stepping in to socialize the risks of private business – we’d much rather eliminate the fund and the liability limits. The whole reason for the current setup is that certain people thought the threat of massive torts wouldn’t be a serious deterent, so the goverment had to step in and handle the matter itself by pre-emptively taxing the oil companies to establish a clean-up fund.

  4. #4 PinotGraves
    May 3, 2010

    And Yoshi, you forgot to mention BP’s opposition to the Dept. of Interior’s Mineral Managment Service proposals for more redundant, fail-safe blowout preventers, on the grounds of increased cost….of $500,000 per, according to news reports. And MattXIV, I think you meant to say the threat of unlimited tort liability *would* be a deterrent to drilling, yes? Or have I misunderstood your point?

  5. #5 coby
    May 3, 2010

    yoshi, with all due respect how can you acknowledge that “BP has stated they will pay for the cleanup” and at the same time question whether they have any liability? They will pay because…?

    The board is bound by law to act only in the interest of shareholder profit. They will not pay one cent more they they absolutely have to by law.

  6. #6 Scott A Mandia
    May 4, 2010

    Big Oil Bailout Prevention Act

    The legislation proposed by three Democratic senators would dramatically raise the cap on how much oil companies would have to pay from $75 million to $10 billion.

    Scott A. Mandia, Professor of Physical Sciences
    Selden, NY
    Global Warming: Man or Myth?
    My Global Warming Blog
    Twitter @AGW_Prof
    “Global Warming Fact of the Day” Facebook Group

  7. #7 MattXIV
    May 4, 2010

    PinotGraves,

    I meant it wouldn’t be a deterent to risky behavior in some people’s minds, specifically those who favored setting up the the trust fund and the per barrel tax because they thought that the threat of torts would not deter companies from risky behavior. The oil companies were quite opposed to the system at the time due to the per barrel tax, although I’m sure they wouldn’t have any problems with no-strings attached statuatory limits on their liability.

    The BP decision on the caps is an excellent example – if you’re paying into the trust fund on a per barrel basis regardless of how safe you are and thus have already paid for a clean-up, why not take the risk? It’s the same reason we get periodic finacial crises – if the Treasury is going to step in at the last minute to prevent you going bankrupt, you can leverage yourself a lot further since bond holders know that they’ll still get paid if the company’s assets lose their value.

  8. #8 PaulinMI
    May 4, 2010

    Would any free market supporters like to defend this thinly veiled example of corporate welfare?

    The government assumes the risk so that the business may continue. With open ended liability, it would probably be hard to get anyone to drill there (at current oil prices).

    It’s not free market. But cheaper oil is a subsidy to the consumer and employee as well as the Oil Company, so not so sure “corporate welfare” fits the bill either.

    A congressman may say it’s good for the constituents, a cynic may not.

    You certainly could argue about the $$ amount, or whether the risk should be subsidized, but then you wouldn’t have nuclear power either. But you might have windmills and solar!

  9. #9 PaulinMI
    May 4, 2010

    Oh yes, another interesting number: zero. That is how much BP pays in royalties for the priviledge of extracting a US taxpayer owned resource.

    I am not an expert here, but I’ll wager they bid for a lease with no guarantee of return.

    The board is bound by law to act only in the interest of shareholder profit. They will not pay one cent more they they absolutely have to by law.

    Nor should they. The rules of the game were established by those who invited them to play.

  10. #10 Vernon
    May 6, 2010

    Coby,

    I realize you don’t want the facts to get in the way of a good rant but there is a royalty paid on every barrel of oil pumped to the US Government. Additionally, the US Government set up the current system with a trust fund and limited liability which an additional fee is paid per barrel of oil.

    Instead of ranting at “Big Oil” why not rant at the Government and three presidents that were in office when NOAA determined that it was the responsibility of the Government should spill happen, yet, fail to purchase the equipment needed nor to implement the plan until it went from a spill to a disaster.

    Additionally, if BP is found to be negligent, then the 75 million cap is removed.

  11. #11 Emil Karlsson
    May 7, 2010

    Coby,

    You need to appreciate that state capitalism is not the same as free market capitalism. Attacking state capitalism and pretending that it is free market capitalism is like claiming that progressive creationism is the same as atheism, then going on to criticize atheism with arguments against progressive creationism.

    The main problem with this whole “oh my god, they are making money!” argument is that it is a thinly yield argument from motive, which is a logical fallacy. This is the same type of fallacy the anti-vaccination movement makes against the pro-vaccine doctor Paul Offit: “Offit is making money from vaccines, therefore he must be evil and thus his position is invalid”.

    I’m afraid that is not the way reality works.

  12. #12 coby
    May 7, 2010

    Hi Emil,

    My comment was an attempt to ridicule the notion of “Free Market” anti-gov’t regulation proponents espouse. I have no problem with people making money, I do however have a problem with people writing the laws for themselves that enable them to make money in anti-competitive and unethical manners and keeping the profits while passing of the costs to taxpayers.

    I’m afraid that is how reality works in the financial and resource extraction industries.

    I’m not sure how you define state capitalism, but definitions I am familiar with would apply that term better to China, not the US.

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