Obama’s $20 Billion BP ‘Shakedown’ Is a Shakeup: Ann Woolner
Commentary by Ann Woolner
June 18 (Bloomberg) -- The numbers already astound. As much as 60,000 barrels of oil gush from the Gulf of Mexico’s floor each day. Some 1,300 miles of shoreline are threatened, more if currents carry runaway oil around Florida’s tip and up the Atlantic coast.
The livelihoods of shrimpers, fishermen, restaurateurs, hoteliers and small businesses are on hold for who knows how long. And then there are the waterfront property owners who now expect the white beaches and blue-green waters at their doorsteps will turn toxic.
So what’s to be thought of the $20 billion fund BP Plc was persuaded to set up?
Call it a pretty good start. A shakedown? Oh, please.
Texas Republican Joe Barton called it that at yesterday’s House Energy subcommittee hearing, one of the few moments that BP Chief Executive Officer Tony Hayward wasn’t the target of members’ wrath.
But how can it be a shakedown, when BP had already pledged to pay all legitimate claims? If that was a sincere offer, then the fund is simply an apparatus to insure that it keeps its promise and does so fairly and more quickly.
It gives BP’s word credibility, something sorely lacking as evidenced by the number of times the company has pledged to operate safely only to host a deadly refinery explosion, a major spill in Alaska and now this catastrophe in the Gulf.
Gushing Crude
The company still can’t say with certainty when the crude will stop gushing, where it will go or how much damage will have been done by then. But at least the folks suffering along the Gulf know now they will be compensated for what the company’s apparent recklessness took from them. That confidence won’t save an oil-drenched pelican, but it should at least ease some anxiety.
We don’t know what President Barack Obama or any other administration official said during the four-hour come-to-Jesus meeting in the White House with BP this week. Nor can we say how accepting BP was of the escrow account and new claims process. No allegations of waterboarding have surfaced.
There are reports that BP wanted to cap the escrow account and eventually caved. Well, good.
It would have been impossible to set a ceiling now, anyway, given that oil is still pouring out at a rate no one even knows.
Storm Surge
Then there are the too-horrific-to-contemplate consequences if a hurricane should blow through. Even a minor storm surge would wash the crude miles deeper into low-lying wetlands.
If the escrow fund had been capped, no one victimized by this disaster could have been certain they would be made whole.
The $20 billion dollar figure looks big but shrinks when viewed against the harm already done and the potential for far more.
Oil still lingers in Alaska from the 1989 Exxon Valdez spill, which now seems like a mere puddle compared to this.
Besides, the escrow account will pay for all sorts of claims beyond the ones submitted in a process headed by Kenneth Feinberg, who oversaw payouts from the Sept. 11 victim compensation fund. It will also cover judgments and settlements from lawsuits, which victims are still free to pursue. There are more than 230 of those pending, many of them aiming for class- action status.
Plus, the fund will pay for damages to natural resources as well as local and state response costs.
Drilling Moratorium
It doesn’t include the $100 million that BP is setting aside for oil workers laid off because of the administration’s moratorium on offshore drilling. Nor will it go toward the $500 million BP committed for a 10-year project to study the effects of oil and gas pollution.
Eventual fines or penalties, which are bound to be substantial, will have to come out of some other pocket, too.
For a shakedown, this one came with terms that aren’t especially difficult. It isn’t as if BP has to find $20 billion in cash by next Tuesday, or even within the next 12 months.
A mere $5 billion is required each year for the next four. That is less than the canceled dividends, projected at $7.5 billion for the last three quarters of this year.
In case the annual contributions run short, BP is setting aside $20 billion in U.S. assets initially.
This will turn out to be the best thing to happen to BP since the Deepwater Horizon exploded on April 20. Investors showed they like it by pushing the share price up in the wake of the announcement.
It is also the first credible piece of good news for the people and businesses of the Gulf of Mexico in two months. If BP had to be shaken down to produce it, then shame on BP.
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