BP battling financial disaster

As BP’s share price and reputation continue to take a beating in the wake of the April 20 explosion of the Deepwater Horizon oil rig in the Gulf of Mexico, its embattled CEO Tony Hayward has attempted to counter the criticism of his company by arranging for an “armada” of ships and a “small air force” of aircraft to try to prevent the oil slick from reaching shore and damaging the fragile coastal environment. Hayward also has dispatched 2,500 BP staffers to fight the actual fallout as well as the PR nightmare the spill has created for them.

Although Hayward has gone on record by saying BP is “fully responsible” for the cleanup and any “legitimate” claims from the spill, many refuse to take him at his word. “We will absolutely be paying for the cleanup operation,” he said. “There is no doubt about that. It’s our responsibility and we accept it fully.”

When pressed as to whether or not BP is willing to pay claims to individuals who lose their livelihoods due to the spill (fishermen, oystermen, and shrimpers, for example), Hayward went so far as to say, “BP has made it clear that where legitimate claims are made, we will be good for them.” He added that a claims process has already been put in place and that some are being paid immediately. Larger claims must go through a longer process.

The BP accident off the coast of Louisiana has been compared by some to the Exxon Valdez spill in Prince William Sound in Alaska in 1989. ExxonMobil lost a class-action lawsuit filed by those whose livelihoods were disrupted by the spill. The company fought the original jury award of $5 billion in punitive damages for almost 20 years until the US Supreme Court reduced its burden to about $500 million. Most legal experts expect BP to vigorously defend itself in court against similar lawsuits.

Now comes word that Congress and the Obama administration are moving swiftly to raise the legal limit on what BP and other energy companies can be forced to pay in economic damages following oil spills like the one currently threatening the Gulf Coast. Although the 20-year-old Oil Pollution Act, passed a year after the Exxon Valdez accident, stipulates that each responsible party for an oil spill is liable for cleanup costs, existing laws cap their liability for economic damages – such as lost profits, destroyed property, and lost tax revenue at $75 million.

Concerned that claims by commercial fishermen and local governments along the coast could go far beyond this limit, Democratic lawmakers in the House and Senate are advancing legislation to raise the ceiling to $10 billion.

White House officials have said numerous times that BP should shoulder the entire cost of the spill. BP’s Hayward responded on May 4 by saying that the $75 million limit “will undoubtedly be exceeded.”

Meanwhile BP’s share price and reputation continues to take a beating. In the week after the explosion, more than $23 billion of the company’s value had been wiped out. Industry watchers are waiting to see if the stock value continues to plummet or if the strong steps BP is taking will save the company from additional financial disaster.

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