Myself being a “regular guy”, I think this is a massive exaggeration. BP’s assets are worth hundreds of billions of dollars. By comparison, Exxon was originally fined $287 million for actual damages and $5 billion for punitive damages for the Exxon Valdez oil spill. As far as I can tell they, the punitive damages are still being disputed in court.
In short, there is no way in hell BP is going to declare bankruptcy.
The first thing you have to do when you file for bankruptcy is to prove to the bankruptcy court that you are, in fact, bankrupt. (Your liabilities exceed your assets by a significant amount.)
Right now, that’s not the case with BP. Even the more alarming estimates of the total cleanup costs are dwarfed by BP’s revenue. There will be a hit (a very significant hit) to their bottom line, but the company is not in danger of failing at this point.
BP’s first quarter profits for this year, 2010 were $61 million dollars per DAY. That is profit, not revenue or gross sales, profit.
This little oil spill will cost BP some cash, but not a significant amount. Since it will take years for the liability issues to be resolved they will be fine and will profit many times more than the final cost of the spill, before they even begin paying.
You seem to be using a circular definition of “final cost” to mean “whatever amount they end up paying,” whereas I interpret the phrase “make things right” to mean undoing their damage and restoring the Gulf environment to something close to what it was, as well as compensating those whose livelihoods have been wrecked in the meantime.
I don’t know that the latter is even possible at any price under 2010 technology.
Replacement cost profit at $14 billion is the closest that gives to the normal net profit that most businesses report. The news is talking about a fine of $2-4 billion. That’s a significant hit, but if I were l were still looking at $10 billion in profit for 2010 I would feel fairly secure about my bank balance. (And that’s assuming they would pay the fine as a lump sum. I can’t believe that.) Last I heard they were spending a mere $6 million a day on cleanup.
In the long run, the world economy is a much huger factor for BP’s finances than the spill will ever be.
Don’t sell yourself short. Although most of the people in the thread so far seem to think it couldn’t happen, strategic bankruptcy is hardly unknown to the courts.
Whether it is available to BP is certainly a complex and difficult question, but anyone who thinks that BP’s in-house and outside counsel aren’t preparing memoranda on the issue have another think coming.
Thanks spark, that’s exactly what I meant.
I’m not trying to exaggerate anything as one poster implied, I’m merely asking a question.
To come up with a final and total cost for this mess seems on the verge of impossible at this moment in time. How do you even measure and project total damages when there’s never been anything like this to use as a comparison? The damage to the ocean(s), the loss of wildlife, fish, plants etc, how do we even project a cost to ‘fix’ everything; and I havn’t even included the lost wages/income from fisheries, tourism, etc.
I’ve got a feeling the cost of this will be much higher than anyone can guess because off all the unknown factors and what the end result will be.
Thanks to all for pointing out how financially sound BP is, at least that’s one good thing.
As mentioned by others, bankruptcy is for those who are unable to pay their debts and need the government to step in and get them a break, not a convenient way to quit and walk away when the going gets rough.
To make an analogy, BP is in a situation where they are taking a big hit, but it looks like they could survive and stay in business. Therefore, bankruptcy is not for them, just like it is not available to some random Joe Bloggs who is unhappy that he won’t get to go to Hawaii this summer because he got a 10% pay cut at his job and his mortgage interest rate went up 1%.
Short answer is yes a company could create a mess like this and file bankruptcy and walk away leaving the disaster to someone else.
The numbers put up as potential costs to BP do not support them going into bankruptcy. They are one of the most profitable companies to ever exist. They have unfathomable amounts of wealth and can use it to buy themselves out of such a disaster. As long as the US depends on oil, oil companies can and will be able to afford such a disaster without the fear of bankruptcy.
pardon me while I laugh my ass off. this is just 100% wrong.
now, back to reality…
yes, BP can absoultely file for bankruptcy. Contrary to what friedo says, you do not have to “prove” that you are bankrupt/insolvent/etc. The court doesn’t care - they will take your filing fees, the trustee will pay off your creditors and take his cut, and you can walk away with your equity and a bad smear on your credit report. Of course, if you’re solvent, there’s absolutely no point to filing bankruptcy, but it’s not that you can’t.
“Environmental liabilities” are extremely complex in Bankruptcy litigation, especially in non Chapter 7 (i.e. Chapter 11 reorganizations, i.e. not even bankruptcy) filings. There is a whole host of other federal law (CERCLA, for one) that will impact what, if any, relief a bankrupt entity can get from “environmental liabilities”. I don’t have the first clue what that impact is, though.
BP is headquartered in London. I’m not sure what the corporate structure is, although there is a BP America in Houston. Whether that can file separately for bankruptcy isn’t something I can’t answer. As a company, though, British bankruptcy law would prevail.
Seriously, though. BP is not filing for bankruptcy over this. As a theoretical exercise it’s a good internet time waster. But it’s not happening in any reality. It took in almost $300 billion last year. It will make hundreds of billions in profits over the next decade. The stock is down around 30% since the spill started. Why is the stock still valued so highly? Because the company will make hundreds of billions in profits over the next decade. The spill is serious but by any long term standards a mere blip. I’ll bet the sinking of the Euro compared to the dollar this year has had a greater actual impact on their bottom line.
By next year nobody will remember that this happened and the stock price will be back higher than it is today.
You know the phrase “deep pockets?” These are deep pockets.
I think you assume that every bankruptcy is a Chapter 7 liquiation. As Rumor_Watkins points out, strategic bankruptcy would almost certainly be a Chapter 11 reorganization with BP as the debtor-in-possession and very likely make use of a pre-packaged bankruptcy (i.e., where BP has coordinators with its principal creditors in advance before filing a petition) and cram-down (a technical feature of Chapter 11 which allows the debtor-in-possession to push through a plan of reorganization over a dissenting class of creditors).
I have always bought gas from a station that was fairly close to my home. Fortunately, that has never been a BP station.
But I sure as hell would like to boycott BP stations from now on. Does that make any sense? I know that even if hundreds of thousands of people boycott BP, it won’t make much of a difference. But is it still a reasonable thing to do? Will it sent a message to the oil industry?
No, it doesn’t. Most gas stations are franchises, and you’d just be screwing a local business owner or unrelated company. Gasoline is a fungible commodity, and distributors buy on the open market from whoever has the cheapest gas the closest. The probability that a given gallon pumped from a BP station actually came from a BP well is small. (And what about BP refineries, do you want to boycott those as well? They did manage to blow one up in Texas a couple years ago.)
Nope, totally pointless thing to do. Even if nobody bought gas from BP, gas is what’s known by economists as a “fungible” commodity. Which means BP gas is the same as Mobil gas is the same as…
If BP isn’t selling it to Joe Cardriver because Joe is boycotting them, then Joe is buying it from Mobil, instead. Mobil can’t get enough from it’s wells or make enough in it’s refineries because everyone’s buying theirs instead of BP’s? They just buy refined gas from BP, and pump it into Joe Cardriver’s tank, anyway. In fact, if Mobil can buy it from BP cheaper than they can make it themselves, they will, even if they have the spare capacity.
why should they?
As large as this spill is, it isn’t going to seriously impact their bottom line. They make approximately $20Billion/quarter. 2 or 10 billion for cleanup costs spread out over the next 10 years isn’t going to be a financial burden on them. This is a big deal to BP and to the rest of us. But it isn’t going to cause major financial harm to BP.