Why BP wants to stop the Gulf oil spill as much as Obama
US officials, including a US Coast Guard admiral, cabinet secretaries, and President Obama himself, have been cracking the whip on BP to spur a stronger oil spill response.
That may be a rational thing to do, given the magnitude of the spill and the public interests at stake.
But a simple point remains true: The giant oil company already has a strong financial interest in achieving the same objectives that are primary for the US government - plugging the leak and keeping the spilled oil from hitting land when possible.
IN PICTURES: The Gulf oil spill's impact on nature
Money is talking loudly to BP, even without Mr. Obama’s recent threat of a presidential “kick” to the company’s backside.
“Stopping the blowout is absolutely their top priority,” says Robert Bryce, an energy expert at the Manhattan Institute. Executives at BP “have no other priority as a company. This is it. The longer the blowout continues the worse it gets for BP, period.”
As long as oil is spilling, the ultimate tab for the mess is climbing – with the possibility that BP might even have to sell prized assets to cover the bill. And regarding the oil that’s already in the Gulf of Mexico, some analysts say BP saves money by snaring as much oil as possible before it washes ashore.
“Clearly, BP will want to fight this battle offshore,” stock analysts at Credit Suisse wrote in a report on June 2. The company has reported skimming 321,000 barrels of oil so far – which may be nearly one-fifth of the spill, the analysts said.
The financial imperative for BP is visible in its stock price, which has fallen by roughly half since the April explosion at the Deepwater Horizon rig the firm was operating.
All this doesn’t mean that BP’s financial interests are exactly aligned with those of Uncle Sam.
BP is paying cleanup costs, for example, because it has to under a US law passed after the Exxon Valdez spill. Various private-sector and government parties hope to get the firm to pay some costs that BP won’t agree to. Sizable financial court battles seem likely.
US politicians have also put pressure on BP to stop paying dividends in order to make sure it has funds on hand to cover spill-related liabilities. BP hasn’t announced what action it may take on that front.
Canceling those payouts to shareholders is not something it wants to do. For one thing, it could push the share price down even more if the move prompted some investors to sell in frustration. Refusing to slash the dividend could expose the firm to more public criticism in the US.
In fact, part of the reason for BP’s stock price plunge is uncertainty about whether BP will face new legal liabilities or additional political penalties from Washington or state governments.
On Thursday, Florida’s attorney general demanded a $2.5 billion escrow payment from the firm to cover potential damage from the spill.
Even to the degree that BP feels a strong financial incentive to stop the spill and contain the environmental impacts, some analysts also caution that government has good reason to be demanding information from the firm and exerting pressure. Companies, like individuals, aren’t always able to respond successfully to a crisis – even when they have a financial interest in doing so.
But behind all the adversarial drama between BP and the Obama administration, analysts say there’s no doubt of the company’s basic financial incentive.
“Certainly it’s in their best interest to stop the flow as soon as they can,” says Philip Weiss, a securities analyst at Argus Research.
IN PICTURES: The Gulf oil spill's impact on nature
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