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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: BP Gulf spill oilpocalypse
June 17, 2010 at 9:50 AM

BP’s $20 billion compensation fund: It ain’t over ’til it’s over

At first glance, the $20 billion “escrow account” BP has agreed to fund to begin to cover damage from the Gulf oil spill would seem like a major victory for President Obama. It certainly goes far beyond the federal government’s efforts after the Exxon Valdez. Still, unknowns and pitfalls abound.

One of the least noticed developments is the report that BP has retained Goldman Sachs and Blackstone Group as “financial advisers.” While in theory, these two Wall Street playerz perform a number of duties for clients, they are mostly known in these circumstances for their mergers and acquisitions work. As in, shopping BP to another oil company or trying to fend off a hostile bid (and how long before major BP institutional shareholders and the board rebel?).

Who would want a company saddled with a $20 billion initial obligation to the United States, and, according to a Credit Suisse estimate early this month, facing a tab of $37 billion for the cleanup? Nobody. Unless, of course, the cleanup liabilities were quietly shifted into segregated corporate subsidiaries while the highly profitable ($14 billion in 2009) remainder of the company was sold off.

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June 1, 2010 at 9:50 AM

Top kill nails BP shares, if not the gusher in the Gulf

You know I’m reluctant, outside of a major shock, to ascribe stock movements to a single event — too many individual decisions are being made on information and passions we may or may not be party to. So today it’s easy to blame the failure of the so-called top kill operation for the sell-off in BP shares.

Maybe. Who knows? The more information that comes out, especially thanks to the investigative work of the Wall Street Journal and New York Times, the worse BP comes off. The greater its potential liability grows. Offsetting that is the huge political power BP and the other oil giants have in Washington. If they can’t capture this worst oil leak ever, they certainly have captured regulators and politicians.

The stock should be falling because BP, with an abysmal environmental and safety record, has been shown to also be incompetent, with the gusher a running sore reminder for months/years to come. Because in a more balanced world the environmental and safety claims would empty BP’s treasury. Because, along with the shares of the other majors, BP is caught in the vortex of peak oil, where the easy and cheap days are rapidly diminishing.

But the reason is as likely that the shadow boyz shorting BP for profit. And the danger of a double-dip recession causing oil to fall, hence hurting profit growth, and BP is the ugly duckling, already. If that fear abates, our hunger for oil will restart the gusher of green.

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