Hey CFDavid Et Al....concerning Gulf Oil Spill

[jetproppilot]

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Dear CF,

You're obviously gifted in the knowabouts of economics.

I'm not. hey at least I'm honest.

GOTTA QUESTION FOR YOU:

I know BP Oil is a HUUUUUUUUUUGE company. Billions.

That being said, how does a company like BP survive, economically speaking, from such a catastrophic f u kk up?

Cleanup. Lawsuits. Potentially the END of Louisiana's incessantly profitable seafood commerce/commercial fishermen/recreational fishermen/dudes that supply ice/dudes that sell gas to fishing boats/seafood restaurants/hotels on beaches/ etc etc etc

Read the above paragraph...I'm sure I've left out a plethora of affected individuals/industries...who are all gonna want, and are entitled to CASH MONEY....ALOT OF IT. And the cleanup! Jesus H Christ. The cleanup. This accident has the potential of ruining the Gulf of Mexico, all land abutting it, and all industries that rely on the Gulf of Mexico.

Reflecting on the Exxon Valdez accident,

Exxon is still around and that was an ecological accident of epic proportion.

THIS ONE IS GONNA BE WORSE. MAYBE MUCH, MUCH WORSE.

So, CF et al,

speak to me in your economic wisdom tongue.

Explain how BP can survive this without going under.

Seems to me it doesnt matter how much money they make since to me its gonna take alot more than they make to clean up this mess.

 

[Apollyon]

http://www.slate.com/id/2253183/

Oil Spill FAQ

How will the BP disaster affect the U.S. economy?

By Christopher Beam

Posted Thursday, May 6, 2010, at 6:49 PM ET

Efforts to clean up the BP oil spill in the Gulf of Mexico continued this week, but as of Thursday the well was still leaking 210,000 gallons a day. This raises questions about the effect of the spill on the oil industry, some of which we've tried to answer below.

Will the spill raise the price of gasoline?

Probably not. The Deepwater Horizon rig was digging an exploration well (used to learn more about the area), not a production well (used to sell oil). So the mishap has not changed the daily U.S. oil supply by a single gallon. Besides, the quantity of oil gushing out every day—about 5,000 barrels a day—isn't enough to disrupt the global market, since energy companies produce 85 million new barrels daily. The Exxon-Valdez spill in 1989, by comparison, leaked 10 million gallons (about 290,000 barrels - Beam is an intellectual slob) into Prince William Sound and did not significantly affect the price of oil.

Granted, if the spill leads to more regulation—an increase in safety standards, at the very least, or a moratorium on new deep-water drilling at the most—the price of oil could rise, since companies will pass the cost of any change along to the customer. But the difference would probably be imperceptible at the pump.

Given the likely damages from the spill, can BP survive?

Yes. Even if Congress raises the cap on damages to $10 billion, that's unlikely to topple BP, which reported a profit of $13.6 billion in 2009. BP stock has dropped by nearly 20 percent since mid-April—the equivalent of about $34 billion in value. But economists expect the company to stay afloat.

Will the accident hurt the earnings of other oil companies?

Possibly. Offshore drilling accounts for about 30 percent of U.S. oil production. (The rest of our domestic oil comes from land drilling in places such as Texas, California, and Alaska.) If Congress or the administration decides to freeze new offshore drilling, companies that rely disproportionately on this method will suffer.

Federal law caps the liability of oil companies at $75 million in damages for a spill. (That doesn't include the cost of cleanup, for which BP is responsible.) Members of Congress want to raise the cap retroactively to $10 billion. Is that legal? It depends. Article I, section 9 of the Constitution disallows changing the law ex post facto in criminal cases. (There are some exceptions. For example, the 2006 law that created new registration requirements for sex offenders applied even to those who had already completed their sentences.) In civil law, however, courts generally allow retroactive rule changes. A series of court decisions in the 1980s and '90s held that the 1980 Superfund law regulating hazardous substances could apply to companies that had released toxins before the law was in place.

For his part, BP executive Tony Hayward has suggested that the oil giant would be willing to pay more than the $75 million cap if the claims are "legitimate." But BP would likely challenge in court any attempt to raise the cap as high as $10 billion.

 

[lord_jeebus]

As noted above, BP's liability is limited to $75 million (which is probably about what they spend annually on executive compensation alone) plus cleanup. I very much doubt that attempts to raise the limit retroactively will be successful. Most of the compensation will probably come from the Oil Spill Liability Trust Fund, which comes from oil taxes and can contribute up to $1 billion of money that has been collected since Exxon Valdez.

I expect that eventually the US government will take a more active role in the clean-up process and spend many years attempting to collect reimbursement from BP with limited success.

Ultimately, almost all the money is going to come from US taxpayers, either from oil taxes previously passed down to consumers by the oil companies, or further deficit spending if the government gets involved more actively.

Those directly responsible will contribute little and remain fabulously wealthy.

 

[cfdavid]

Great posts guys. Learned a lot just by reading em...

Sadly, I haven't been following the particulars of the spill which is a definite friggin nightmare.

I wonder if they have disaster insurance as a contingency for this type of thing? I'm sure they DO.

I also think that RIGHT NOW, BP, with no clear solution in sight, will be playing "nice guy" with tail between their legs. But, when the dust settles, my guess is that the tune will change and they'll fight tooth and nail to minimize their liabilities as well as to spread those liabilities out amongst the several other contractors involved (which in and of itself may be a great legal move which could defer any major settlements while things get tied up in the courts).

Survival is anyone's guess. They're SO big that my consipiracy minded thinking is that they will NOT fail. This is the UK's most "venerable" oil company, who's predecesors go back a LONG way. And, the U.S. and UK obviously share in some major geopolitical adventures which are very large in scale.

It'll be interesting to see the "fall out" from this one. I feel the consequences will be more political than anything, though surely BP's gonna shell out some serious cash for this, in the long run.

Currently, I'm not dialed into many stocks, but if the fallout includes major clampdowns in offshore drilling, then those companies associated with said drilling will as you know, stand to lose. That being said, there's always a corrupt government willing to risk their own habitat for a kickback, not withstanding all of the other contracts already in place around the world, as these are clearly global corporations. So, any fallback from U.S. waters would be offset by ongoing operations elsewhere in the world.

Also, I'm not hearing "chatter" from the mainstream media (for the most part) that this will spell the demise of BP.

Sorry for the lack of financial details. Again, I've not generally been too informed relative to the oil industry so much as the geopolitical scene relative to the price of oil.

Relative to stock/trading speculation, your guess is as good as mine. I think that the big players (the big speculators) are already dialed into this one in a big way. So, for the little guy to attempt to trade this "play" (not that that's what anyone is asking, but just for kicks....) could be risky. Daily, even hourly news could impact the stock price and clearly analysts from large investment banks and hedge funds have the ability to move markets in their favor with the "click" of an interview on CNBC etc. I'd personally stay away from this one, on that front.

It will be interesting to see the political fallout from this tragedy. This happened at a time when increasing offshore drilling was all the rage, which in itself caused me "pause" for a moment. Increasing offshore drilling in order to decrease dependence on foreign suppliers would obviously have it's winners and losers. But, I think it's doubtful that this was a case of industrial (or even state) espionage. However, that can never be ruled out given the super high stakes in this trillion dollar industry. But, my "sense" is that this was a simple f.ck up with new exploration techniques (i.e. deeper waters) and no verifiable solutions previously in place.....

Jet, like you mentioned, at this point, I'm more concerned with our own local industries along with the ecological fallout from this mess. I think we can all agree on that one.......

Wish I could add something more tangible to this discussion. It seems there are so many variables with lots to play out as they attempt to "simply" stop the leak. It's still so "fluid" that it seems early to guess as to what will be what when things settle down.

cf

 

[sevoflurane]

http://www.slate.com/id/2253183/


Given the likely damages from the spill, can BP survive?

Yes. Even if Congress raises the cap on damages to $10 billion, that's unlikely to topple BP, which reported a profit of $13.6 billion in 2009. BP stock has dropped by nearly 20 percent since mid-April—the equivalent of about $34 billion in value. But economists expect the company to stay afloat.

Agree. Had a sit down with my broker last week. Went over BP and BPT. Their beta is fairly safe. Their projected profits in light of 10 billion lawsuits (if it happens) + clean up will not bankrupt them by any means. They will still profit. If their stock slips down to the mid 30's, I'm prolly gonna buy. BPT has an 8% dividend.

Check out WFR: unrelated, but not a bad time either. Projected at the end of the year is 20 a pop. But, again... I don't know anything about the market... just enough to be dangerous.... to myself.

http://www.google.com/finance?q=wfr

 

[lord_jeebus]

Projected at the end of the year is 20 a pop.

Projected by who? The best predictor of a stock's short-term future value is its current value.

 

[sevoflurane]

Projected by who? The best predictor of a stock's short-term future value is its current value.

True dat. In 2007, it was worth $90. Now it's at an all time low of $11. I've read a couple of articles that speculate where it's gonna be at the end of the year.

 

[cfdavid]

True dat. In 2007, it was worth $90. Now it's at an all time low of $11. I've read a couple of articles that speculate where it's gonna be at the end of the year.

My only problem with that is that 6 months is kind of a long time by today's trader-based stock market. There's SO much to play out before, it seems, anyone's guess can be of any value.

That being said, if you're really nimble and "dialed in" (i guess i like that phrase), then you could TRADE, but I'd only recommend VERY short term stuff (less than a day even and cash out before the overnight news (or rumors) erase your would-be gains).....

Frankly, as I leave an incomeless 4 years of med school, my dwindling investments are literally only gold and siver ETF's, which have been doing o.k., but just o.k. I'm comfortable with that, though as I don't have the ability to be agile right now.

cf

 

[SammyDavisJrJr]

The poor oil-covered dead/dying animals are the worst (at least for me...)