Imagine the BP case playing out in a Louisiana courtroom, against the backdrop of an oil-choked local economy, high unemployment and an angry public. How high can you count?
Under the Oil Pollution Act of 1990, BP’s liability for economic devastation — above the cost of the cleanup — is capped at $75 million, a number Mr. Hayward has already said he plans to blow through. But if BP is found to have violated safety regulations, which seems likely, that cap becomes irrelevant.
That’s not to say that BP won’t fight a huge judgment against it. After the Exxon Valdez spill, Exxon fought a $5 billion fine for punitive damages for two decades. It won. The fine was cut down to $4 billion, then to $2.5 billion. The case eventually made it to the Supreme Court, which found that Exxon’s actions were “worse than negligent but less than malicious,” and vacated the fine. The judgment limited punitive damages to the compensatory damages, which were calculated as $507.5 million.
“There are so many imponderables over whether its liabilities would be capped or not,” David Buik of BGC Partners in London wrote of BP. “If BP’s share price continues to fall, it could become a takeover target.”
Given that Shell and Exxon have billions in cash on hand and market values that easily exceed BP — Exxon is twice the size — bankers say now is the time to make a deal, as long as an acquirer can find a way to separate the legal exposure. That, of course, is a big ‘if.’
There are many people — besides BP — who think even discussing the possibility of a bankruptcy or takeover is silly. But looking out a few years, that may be BP’s best, last hope.
“Even with a prepackaged bankruptcy, BP’s brand is permanently tainted,” said Robert Bryce, a senior fellow at the Manhattan Institute and author of “Power Hungry: The Myths of ‘Green’ Energy and the Real Fuels of the Future.” Yes, BP is financially sound now. It is unlikely to go bust near term, he said.
“Instead, BP will spend the coming decades circling the drain, mired in endless litigation, its reputation irreparably damaged, and its finances weakened,” Mr. Bryce said.
That, if you believe the bankers, is the optimistic outcome.
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