BP shaping up as Lehman Brothers in the oil patch

While I was not surprised that the current administration would be quick to try and capitalize politically by using the Gulf oil disaster as a springboard to push for the proposed energy bill, I hadn't thought of this in the terms presented by this OP/ED author.

blogs.reuters.com

BP’s deepwater debacle is shaping up as Lehman Brothers in the oil patch. The toxic ingredients that led to that Wall Street firm’s implosion are abundantly present in the British energy giant’s Gulf of Mexico fiasco: flawed risk management, systemic hazard and regulatory incompetence.

And as in the financial industry, the policy response will almost certainly lead to energy’s biggies getting even bigger.

At first blush, the tricky business of drilling oil a mile below the ocean would seem light years from the pin-striped work of investment banking. But fundamentally, the failures of BP’s management to prepare for, and then handle the current crisis, evoke striking parallels with those of the bust securities firm.

Nowhere is this more evident than in the realm of managing their respective risks. BP’s failure to prevent — and so far stop — the leak on the Deepwater Horizon suggests the company did not adequately prepare for the possibility of a spill — a risk that Chief Executive Tony Hayward put at “one in a million.”

One would hope this isn't a possibility but after the bank bailouts, automakers bailout and our governments reactionary legislation, is Big Oil the next in line of the "Too Big to Fail" ?

The idea of placing BP's US assets into a conservatorship has already been floated by a former US Labor Secretary. I posted a thread on it Tuesday.

US Should Seize BP's US Assets?

Also I've seen a rumor posted on a economic rumor board that BP is preparing a recievership. Just a rumor but possibly a contingency plan if the damages get too out of hand.

There is a ton of open interest on BP stock options for Jan 2011. At the moment it doesn't seem to heavily weighted to the downside, but there is a volatility there that I've never seen on BP options (that's expected with the spill though).

In fact the paradigm of failure BP is following is consistent with the 20th century corporatization of the Federal government.

This failure model is consistent across all sectors of industry's that are regulated by politically appointed corporate insiders.

Oddly, we as citizens knew they couldn't be trusted to police themselves, being remotely profit driven as they are, so the 'political' solution was to let them regulate themselves by proxy (while getting paid by the tax-payers to do so.)

Impotent political party leadership and flaccid standards of political socialites and celebrities have once again paid off in full.

reply to post by jefwane


Thanks for the link

So it is not beyond possibility that a move will be made in the future in regards to BP, but it would have to be the US arm of the company or would this be the whole ball of wax?

Hell, Jakat, I don't know what they could do. I'm pretty sure they could do something to BP's US assets. I just find it interesting that Reich, a former US labor secretary, is on CNBS talking about some type of seizure.

Who knows what kind of fines, judgements, and compensation BP will be paying for years. BP is going to paying out the ass for this any which way you look at it. We'll have to see in which direction the Criminal Investigation goes as well.

Speaking of criminal investigations I read an interesting reposting of a rumor from theoildrum in a tickerforum thread. I can hardly keep up with all the Spill threads here and I don't know if it has been posted. Rumor goes like this: A crew from Schlumberger, a previous unmentioned service company, was on the rig until shortly before the explosion. There are rumors that the Schlumberger employees aren't saying anything to anyone right now, but will testify under oath. The rumors go on to speculate about: job was finished, they left; the schlumberger boss thought things were unsafe and left; or the schlumberger crew was told to do something they refused and were removed by BP.

reply to post by jefwane


Not going to comment on the booted crew deal since I haven't seen nor heard of that one.. but..

I have heard that under US law, that BP is only liable for $75Million...

This afternoon I heard that the US Gov't is billing BP for $69Million for their efforts..

That only leaves $6 Million, unless.. criminal charges are filed, I think that that would open BP up for more..


Would the US bill for $69Million count against the $75M cap? Are there different levels of liability? I think it's all starting to get muddled $ wise..

I've heard there is a cap as well, I'm not sure of the amount but heard it was rediculously low. I'm pretty sure, criminal conviction or not, a howl from the electorate will punish either BP individiually or the entire industry. I'm also pretty damn sure the taxpayer will be paying a lot too.

reply to post by jefwane


Here's the latest scoop from the hill. $75 million way too low a cap. Should be AT LEAST $10 billion if a company is going to engage is this type of high risk drilling.


thehill.com...



[edit on 3-6-2010 by manta78]

reply to post by manta78


Just in case, down the road that link disappears, I wanted to make sure some of the text survives here

Snippet from TheHill article date : 05/17/10 01:23 PM ET

BP will pay all costs of oil spill

British Petroleum announced Monday it intends to pay economic damages beyond the current liability cap.

Claims are expected to exceed the $75 million liability cap for damages, and BP chief executive Tony Hayward confirmed Monday "we are prepared to pay above $75 million on these claims, and we will not seek reimbursement from the U.S. government or the Oil Spill Liability Trust Fund," he said in a letter to Interior Secretary Ken Salazar and Homeland Security Secretary Janet Napolitano.

"We will expeditiously, responsibly and fairly pay those claims described by Congress in the OPA statute," Hayward wrote in the letter.

Hayward was responding to a letter from Salazar and Napolitano sent last week asking him to clarify his intentions.

A tweet this morning by BP said the "$75 million is applicable."

reply to post by JacKatMtn


Good idea!

Of course links never "disappear" now do they???