The Fourteenth Banker Blog

June 18, 2010

Joe Barton, BP’s Ho

Filed under: Running Commentary — thefourteenthbanker @ 6:30 AM

Texas fool and oil industry lackey Joe Barton is a sucker. Today he apologized to BP for the rough treatment they have received.  Then apologized for his apology after doing the political math. What do you want to bet he is in a safe seat?  As our own commenter Jerry P has pointed out, the $20B fund may not even cost BP that dearly when all the insurance, other party’s liability, and tax write-offs settle out.

But that is not the key mistake in judgment. To rely on the court system alone for recourse for victims is naive. There often is no recourse for victims in the courts. It is reported that Exxon tied up claims in the Valdez matter for decades and upwards of a thousand claimants died before their cases could be heard. The documentary movie CRUDE depicts the fight of Texaco/Chevron to avoid payment for environmental damages in the Amazon for close to two decades. The suit has been fought for 17 years and was filed well after the environmental contamination.

Consider this Saudi perspective just this week on a matter easily forgotten in the US, but still affecting Bhopal from a catastrophic 1984 accident with egregious negligence on the part of the firm..

Union Carbide should be gearing up now for a massive decontamination operation which would involve them paying whatever it takes to cleanse the Bhopal plant and the surrounding area, fix the poisonous water supply, provide proper medical treatment for the tens of thousands still affected, compensate them directly and, if necessary, relocate them somewhere where they can be safe from further exposure to deadly toxins. Or do 11 US lives matter more to Obama than 15,000 and more dead Indian citizens?

Just over a week ago seven Indian citizens were convicted for their roles, 26 long years later. Granted, Indian incompetence and graft played a role in these delays, but Union Carbide’s lawyers took advantage of that graft to settle a case without compensation to victims and without cleaning up of the still contaminated facility. The justice system let them off the hook. The US has shielded Union Carbide’s CEO from accountability in Indian courts.

US courts are better, but not that much better.

For BP to do the calculus and decide to offer some expedited claims process is not a shakedown, it is good business sense. For a President to expedite claims for affected citizens is fair and just. For Joe Barton, the largest recipient of big oil company contributions sitting in the Congress, to defend the offender in so consequential and obvious a case shows a tin ear, callousness to American citizens, and a blind faith that there is really nothing wrong with a system where huge corporations privatize profits and externalize or socialize the consequences of negligence, using protections offered Corporations under current law to evade accountability and shield employees.

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11 Comments »

  1. I am embarrassed and ashamed that a member of Congress would apologize to a company that has caused so much harm to the people, businesses and territory of the United States.

    Will Mr. Barton apologize to the families of the 11 dead? To the lost business, to the devastation of the fisheries, the precious marshes, the beaches, and all of those “small people” who make there living along the Gulf coast? NOT A CHANCE!

    How typical of the Republican party, who claim that big government harms the people when it fact it protects the people from the harm of big business. Take a look at who contributes to Mr. Barton(R) and then you will understand where his sympathies lie. Has it all boiled down to self interest? Is something else at stake?

    It is time to strip the money out of our political system. Who will lobby for the “small people”, who will contribute to campaigns for them? NO ONE. And yet it begins as “we the people” not “we the corporations”.

    Comment by ella — June 18, 2010 @ 8:09 AM | Reply

  2. The day after the Deepwater Horizon sank, several oil commentators in private subscription sites declared that the disaster was Three Mile Island cubed. After all there was no pollution damage at TMI and look at the result. The company I worked for did the radiation shielding at TMI that prevented radiation escape so I had a lot inputs others did not.

    The BPO spill consequences are not yet really appreciated by the public. There are the well founded ecological fears… that is only the beginning. Perhaps, now is the time that the US understands that our survival and global food supplies at present prices rest on the uses of oil and gas by the US. Few understand that middle distillate uses are key to our agricultural exports of food plus distribution of nearly all our goods. Plus, around 8 million homes heat with middle distillates plus huge numbers of commercial heating.

    It should soon be apparent that even big oil will not be able to produce deepwater oil unless they are highly foolish people. What will be unleashed is liability limits so high that only the government could produce this oil because the government could exempt itself from all liability.

    Here is an example of the interdependency problem. Assume we do without the 1 million bbl of oil in deepwater instead of importing it to make up the short fall. To render the shortfall neutral we curtail our production of exports of foods by a like amount to reduce the huge ecological destruction that herbicides, pesticides, heavy equipment soil compaction and gas based fertilizers we consume. The land goes fallow. We in doing a great deal of ecological good for our efforts at reduction. In return, farm sector employment falls and farmers lose the utility of their lands. ( For asong as the land holds out before collapse.) Food prices in poor countries rise and othersake up the shortfall to earn foreign exchange by destroying their agricultural lands. Foreign exchange wise the reduced cost of imports is offset by reduced generation of foreign exchange. Of course, quite a bit of current refining capacity would be scrapped to build refining capacity elsewhere . So more safety factors insuring our physical survival are destroyed.

    Might this be the time to reduce our oil imports and reduce our offsetting foreign exchange. Certainly, we would also be required to force reliance on domestic consumer goods or eventually do without. Right now, a proportion of our middle distillate usage is burned on Land Bridge rail transport from Pacific ports to Atlantic ports. We revitalized our Transcons to accomodate this service which might go away anyway when the rebuilt Panama Canal opens in four or five years.

    We decide on policy changes now to eliminate deep water oil production or we highly limit big oil liability exposures. Deep water is inherently dangerous.

    We do have vast other crude oil recoveries possible with latest and upcoming Enhanced Oil Recovery methodologies. Here is an example that is a bit old but which makes the point. This is from a presentation by Advanced Resources International, Inc. A very premier research company in the EOR field. From 1859 to date the US has produced around 175 billion bbl of crude oil. Every major oil producing state is getting into EOR. The Us has a nearly four decade lead in this field. The following involves the six largest basins of the US only. Ten basins have now been studied. These six basins have cumulative production since 1859 of 92 billion bbl. They presently have 12 billion bbl of Proved Reserves. Game Changer and State of the Art CO2 EOR would bring in 125 billion bbl more of technically recoverable light crudes with oil prices of $40 bbl and a 2 % cost of CO2. This is a total oil recovery rate of 60 %. A number of these basins are now known to have Residual Oil Zones that could easily add another 30 % to technical recoveries.

    We do have alternates but a long term policy on oil is needed that sticks politically.

    With no policy and the incompetent Federal State we survive under, deep water production will be required. Right now, there might be no price emerging to justify the risk of engaging in deep water by any non governmental producer that is unable to exempt itself from liability for accidents.

    The BP Macondo spill resulted from a getway blow out arising from a failed blow out preventer manufactured by others. If it is true that well casing blew out before the high pressure oil blow out destroyed the blow out preventer, we are talking a massive event. No amount of malfeasance by BP and it’s operating subcontractor probably had any effect on what happened. Deep water is apparently that dangerous.

    Deep water looks to be far too dangerous for private operators in US waters.

    Comment by Jerry J — June 18, 2010 @ 12:10 PM | Reply

    • You have provided outstanding commentary. Thanks for keeping us informed. You are correct that there is a massive dependency that goes far beyond the price of a tank of gas.

      Comment by thefourteenthbanker — June 18, 2010 @ 11:47 PM | Reply

  3. When I first saw details emerging about the BP fund creation, I was intrigued about the possibility that the insurers might be off the hook. If BP settles legally, and with the government of the United States being the counterparty it would seem there is little wiggle room for the insurers not to pay off. Obama wants the damages paid off and surely the administration would lean heavily on balking insurers as part of the BP deal. Surely,practicality would put the government in BP’s corner. I still find no references to disposition of the liability shares of $ 7 billion that would fall on Anadarko and Molex. Anadarko could not take such a hit. So some side deal must be afoot for both these innocent investors who signed a traditional oil deal with BP when buying into Macondo. That tradition must surely now require a vast change for sake of survival.

    I received this weeks Oil& Gas Journal today. There is a piece titled ” Canadian Oil Sands To lead US Imports”. There is a layer graph since 1980 titled ” Breakdown of US Oil Demand”. This graph points out the middle distillate dilemma for US crude oil needs.

    In 1980, we used about 6 million bbl a day of oil in the non transport sector. The transport sector added about 11 million bbl a day. However, middle distillate transport needs were 5 million bbl a day.

    In 2010, we still used about 6 million bbl a day of oil in the non transport sector. The transport sector used about 13 million bbl a day, w with middle distillates making up around 4 million bbl a day.

    In short, gasolines are almost totally a by product of required crude uses in the non transport and middle distillate uses in the transport sector. Cut gasolines and we are short middle distillate uses presently essential to our economy.

    That is a hell of a fixed nut to deal with.

    Comment by Jerry J — June 18, 2010 @ 9:39 PM | Reply

  4. The plot has thickened demonstrably in the last couple of hours. It is hitting the media now that Anadarko alleges gross and willful misconduct on the part of BP. Anadarko has a totally passive interest here. BP has said they expect Anadarko to put up it’s share of the losses. BP is looking for their $7 billion or more if liability is open ended. Traditional oil lease deals require passive investors to put up their share of the costs. That said, If BP was grossly negligent and will fully being reckless Anadarko has a counter claim on BP. I saw this kind of stuff repeatedly in busted construction projects.

    So at this point, what was provisional might never become a legally binding deal. At first blush, BP would have a hell of a time pledging assets to the USG that would normally be part of mass settlement among plaintiffs without passing it through the jurisdiction of the legal system. Suits will abound starting with Anadarko . Two ways at that. Set aside the lease liabilities of Anadarko and others if the government usurps the assets. Second suit would be for damages to recoup its investment in Macondo by Anadarko including damages and interest. Their share of lost profits etc. Every other claimant would file suit too if the government does not indemnify them and hold them harmless.

    Then their are liens by the subcontractors which the government is unable to usurp. I have been involved in many of these deals with subcontractor tax levies and never once did the government collect before lien law rights.

    I would expect massive suits on Monday .

    Comment by Jerry J — June 18, 2010 @ 10:50 PM | Reply

    • Could it be that the $20B essentially is in the form of a settlement with some consideration that has not been disclosed by the US Government. The government being a huge claimant, such a settlement could not necessarily be vacated could it? So perhaps both BP and USG did the right thing by putting the smaller claimants further up the payment priority order with less litigation expense required on their parts?

      Comment by thefourteenthbanker — June 18, 2010 @ 11:50 PM | Reply

  5. The problem is that everything put out , so far, is disconnected and in the form of political or public relations spin.

    What, needs to be looked at is the very weak position the government is probably in without literally trashing it’s own legal system. Example. What should Anadarko do here? It’s problem is two fold. Loss of it’s huge investment in Macondo. Secondly , protecting itself from liability it literally should resist to it’s own death.The Congress passed the Oil Spill Act of 1990 which became a statute. The liability for a spill was generally limited to $75 million. The statute can only be construed two ways here. First there is a liability for any single spill among owners of the source of the spill of $75 million. In that case, Anadarko would send a check to BP for $18,750,000 . they are fully paid. The only other possible interpretation of the statute is that each participant would have a limit of $75 million. Thus, the 65 % owner is capped at $75 million. The 25 % owner is capped at $75 million and so forth. In that case, Anadarko pays over $75 million to BP. In either case, they file suit for loss of investment due to willful and gross neglect.

    Now along comes Obama who apparently takes the position that BP can waive the statutory limits for itself and any other venturers when it is the confessed party guilty of the tort and it is egregiously favorable to Bp at the expense of the passive investors. It should be patently obvious that BP cannot waive the statutory spill liability granted by the People of the United States through its Congress Assembled to Anadarko and others. Here comes BP claiming $5 billion or more from Anadarko and $2 billion or more from Molex. Both parties should NEVER waive the protections of the Oil Spill Act of 1990. If they did do so, they both need to accrue Thefirst order of business of the insurers would be that their coverages were based on the Oil Spill Act of 1990 and that their limits of liability were proportionate or $18,750,000 in the case of Anadarko coverages.

    If one may not rely on the statutes of the Federal Government , we have far worse problems than liability for oil spills. The executive may do as it pleases and usually tries to do in any adversarial duty. Indeed, there would have been a shakedown.

    To make matters worse assume that Anadarko accrued their $5 billion as an investment in Macondo . This happened during the construction period. No tax loss deduction because their was no disposition of the interest. OK, Anadarko theoretically winds up with a deductable loss position. They then lose the deduction until economic performance occurs. That is Anadarko must pay over the $5 billion to get a deduction although they are on the accrual method for both GAAP and Tax. What has long been the case is that Anadarko and others are on the accrual tax method for revenues and cash method for vast amounts of expense deductions.
    I had one accountant that did nothing but track this problem.

    The key question here is whether BP was empowered to waive statutory protections on behalf of passive partners . If so Anadarko has a terrible problem. Then, does the Oil Spill Act of 1990 even permit itself being waived by any party let alone on behalf of others. Who the hell would agree to such a bkank check.

    Obama’s deal will probably fall apart? It sure as hell looks to have a lot unenforceable aspects to it.

    Another question? In leasing the oil blocks for income and royalties did the USG waive it’s sovereign immunity? When entering commercial realms it usually does or few will do business with the USG . There is a huge base question. Did the people of the United States through it’s government even have the right to lease under such dangerous conditions? In short, the peoples losses from their own collective leasing are the tort responsibility of the USG. On this basis, their surely is a shakedown. Would any party contract with the USG with blanket sovereign immunity on the government side and commercial law on their side. If , these parties owned the government for eon’s this would be the first self protection they would force. The USG is a commercial entity the same as they are.

    Comment by Jerry J — June 19, 2010 @ 12:17 PM | Reply

  6. Bloomberg has piece ” BP Partners Anadarko , Mitsui Should Share Woes, Markey Says”

    Congressman Edward Markey, MA, says Anadarko and Mitsui ” should” contribute to the government bail out fund to make good US citizen losses. See, I put spin in there too. Note Markey says they “should” because he knows only political extortion might hoodwink a deal compel: Anadarko and Mitsui will be compelled to pay into Kenneth Feinberg’s sinecure. How can they be compelled if they litigate. Markey knows they cannot and is just pandering as usual. Survival under self governance cannot survive persistent pandering.

    Tell the government to get a judgement against the Macondo venture owned by BP, Anadarko and MOEX. Then , get a piecrcing of the veil to get a judgement against BP Exploration and Production, Inc. and Anadarko’s E&P subsidiary plus MOEX as the E&P subsidiary of Mitsui. Getting that judgement against Macondo Venture and BPE&P should be quite easy given circumstances now being aired. I doubt that a judgement could pierce beyond the Macondo Venture to Anadarko and MOEX beyond a combined 35 % of $75 million or $27,475,000. Both should offer that in exchange for a tax loss of their investment in Macondo.

    Obama and the administration should pursue fines on BPE&P where the culpability probably stops. BP must have a US holding company unless they have been exceedingly careless. They certainly had at least two…Amoco Oil and Atlantic Richfield. I presume here they still do in the absence of a corporate organization chart.

    Interesting quandry here. If I lease out a fire trap I own and the damn tenant kills himself smoking in bed…. I get screwed. Here the government leased an oil disaster trap and the damn tenant carelessly blew it up. Why does the government as lessor not suffer too?

    Is Markey simply politically pandering? A useless schmuck?

    I more and more suspect that the practical reality here will be a bankruptcy filing by select US units of BP. Sooner than we think. The catalyst will be the proposed spillage fines on select BP units that directly caused the spill. These, will be litigated. If fines were imposed on other units: what would be the basis of the fine? BP Alaska would be an example. I would think the fines against all but the directly concerned units would be granted dismissal almost immediately. To impose the fine, it must go through the legal system if BP objects.

    My radical self salivates at some possibilities here if Obama can unilaterally shake down outside the law. Here is one mean example… just to be mean. Tax exempt charitable and religious organizations engage , in the real world, in political activities that are proscribed. OK, decree that they lose their tax exemptions. Probably every church in America loses tax deductability of their contributions and is taxable on the net of receipts over expenses as a profit making corporation. Oh the howls and screams. .

    Who is more disrespectful of facts here? Markey or Barton? Are both political HO’s?

    We need a lot of corporate law revision. Virtually all corporate law is state law with the Interstate Commercen Clause acting as the unifier among the several states. The corporations need their legal butts tamped very hard. But that is a state , and state association matter.

    We could live without deepwater oil but the “Small Person” would be very, very upset at $5 to $7 gasoline. What moron corporation would do deepwater unless they isolate liability to just the single project with no ability to penetrate further into the corporate asset structure. This would need to be iron clad too or stay away. Let the government do it using their own corporation like the FDIC. Screams, howls , rants and poopings all over the country?

    Comment by Jerry J — June 19, 2010 @ 3:58 PM | Reply

  7. Anadarko issued at statement last night. It is on it’s website. Anadarko , has what appears to be usual type Joint Operating Agreement. BP’s relevant unit is the actual decision making operator. From the statement. ” Under the terms of the Joint Operating Agreement ( JOA) related to the Mississippi block 252 lease,Bp, as operator, owed duties to its co-owners including Anadarko to perform the drilling of the well in a good and workmanlike manner and to comply with all applicable laws and regulations. The JOA also provides that BP is responsible to its co-owners for damages caused by its gross negligence or willful misconduct” ” We recognize that ultimately we have obligations under Federal law related to the oil spill, but will look to BP to continue to pay all legitmate claims as they have repeatedly stated that they will do.”

    Simply put, Anadarko, under the law and as a passive investor, has liability up to the statutory limits of it’s share of the $75 million cap under the Oil spill Act of 1990. If I were the the CEO, General counsel or CFO I would retire if this choice of acting were not pursued.

    This one is on BP’s head. I suspect Matt Simmons may well be correct that BP does not last the summer. The other players would be insane to stay in the Gulf if Congress passes and Obama puts into law some draconian liability act. Given what Obama did, they must go for such a Draconian law.

    First and foremost , the government wants deep water oil in it’s territory developed. They have very high risk getting what they desire in Washington.

    Comment by Jerry J — June 19, 2010 @ 5:52 PM | Reply

    • Would come combination of a higher regulatory standard, development of new safety equipment, and a some liability cap, perhaps $10 Billion, be enough to keep some responsible drilling taking place? One risk of course is that we just protect our shores and move all offshore to unregulated environments and simply purchase their oil, with the risks to the global ecosystem actually increased.

      Imagine a scenario where all existing players elect to abandon their Gulf leases. Could a new company be capitalized that would take over those leases and drill both responsibly and profitably? I suspect if could be done. First, they would not have a global franchise at risk. Second, they would be singular in their safety focus. Third, their level of risk would cause them to incentivize behavior that maximized safety. Perhaps such a company could even charge a small premium in the market. Just like a small percentage of people check off “clean energy” on their electricity choices and pay a little more, would some be willing to pay and extra 5 cents per gallon at the pump for safe oil? I would.

      If that is a possibility, could the same thing be done in financial services? Now we are talking about changing the system.

      Comment by thefourteenthbanker — June 20, 2010 @ 12:35 PM | Reply

  8. I should think the loaded term is ” responsible oil drilling”. This is culled from an editoral in the most recent Oil & Gas Journal.

    ” The accident ocurred in an operating realm at the outer edge of knowledge and technology, where peril is highest”

    By definition then, none of the operators in deepwater Gulf ops really know what they are doing. By this, I mean they never understand the nature of a crude opil deposit until they hit a pay zone. One can certainly make observations that are close to correct from subsequent events. The blow out preventer made by Cameron, very good people, failed from the characteristics the Macondo crude subjected the preventer to. That is, a very high pressure and a very high concentration of methane. I read reports that the crude mix coming up is 40 % methane. Absent this disaster, the gas complement might be the most valuable and utilizable. They got surprised? That happens at the edge of the unknown. What Regulator knew more here than the operator PM’s? Even if they were careless as hell and way beyond the pale compared to their peers? If they were really, really way beyond the pale, then we get back to failed regulation by peer review as Bush pushed.

    High tech civilization did not arise from being risk adverse and cloddish thinking. Clergy reside in that turf not mechanical adventurers. Now we have a nation clamoring for new and improved in every breath… but in perfect s afety only. Those that are at the leading edge must know the results before they even try.

    The government will have to develop this oil using a national oil company at some point if Obama persists. He will. A $10 billion risk against any single well result means the well should not be attempted. Add $10 billion risk to the cost of any given well simply defeats the well. How many wells must produce profits that aggregate over $10 billion before even contributing to profits and overhead in any given field or even generally. In the case of Anadarko, the major survivor when BP tanks, the $10 billion is 50 % of equity. No one should play that game. Not even working for the Federal government without a 100 % open indemnity and hold harmless.

    One could do churlish things like a “make good’ tax of $ 1-2 a gallon on each gallon of distillate solely to compensate for all liability arising from fossil energy claims. A kind of Torrens system for all energy torts. Now here would be dynamite and it would never fly. The subsidized here , the ones socializing the cost, are people using oil and gas. That is everyone.

    Anadarko was the equal participant with BP in Gulf deep water and a $10 bn incident cap would kill half their equity. This statement should say it all real terms.

    Comment by Jerry J — June 20, 2010 @ 5:13 PM | Reply


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