The Long Crisis

Archive for the ‘crisis’ Category

As is often the case what is bad news for some provides a bonanza in profits for others. There is no doubt that with the continued flow of crude oil into the Gulf of Mexico, with no end in sight, tort lawyers will clean up with the BP oil spill disaster.

The extent of the Gulf Deepwater Horizon oil spill is already twice the size of the Exxon Valdez disaster in 1989 that contaminated the Alaskan shoreline. The major differences between the two events is that the Exxon Valdez spill involved a finite amount of oil and that oil was released near the surface, not at a depth of over 5,000 feet. From a Tort lawyers point of view the BP Deepwater Horizon oil spill is the gift that will just keep on giving as oil continues to spill into the waters of the Gulf of Mexico.

Knowledgeable oil industry experts seem to agree that the oil flow will not be stopped until a relief well can be completed. The best present estimates are that the relief well will not be completed until at best early August. Then there is no assurance that the first attempt at drilling the relief well will be successful. Evidence is surfacing that the drilling of the wild well had experienced several problems prior to the blowout. Apparently, the geological formation at the well site as well as the depth of the well presents real challenges for even the best and most advanced drilling teams.

After the April 20 blowout, legal squadrons quickly gathered to sue BP and its contractors for claims that experts say could add up to a half-a-trillion dollars or more. About 110 suits have been filed so far, according to Daniel Becnel, a leading tort attorney in Louisiana, and dozens more appear to be on the way.

The nightmare for BP, its top executives, and shareholders, appears to be just getting underway. The US government has recently estimated that the oil spill is gushing at the rate of 12,000 to 19,000 barrels per day. Some scientists believe that even this revised estimate is far too low and that as much as 120,000 barrels per day could be contaminating waters in the Gulf of Mexico. The rate of spill is highly important to BP in that eventually they will be fined by the government according to the size of the total spill. This fine would be in addition to whatever damages are paid out to successful plaintiffs in tort lawsuits and in immediate voluntary payments made by BP to those who have suffered a loss of income due to the oil spill.

There is a fear among environmentalists and government officials, as well as an informed highly interested public, that significant amounts of oil will eventually find its way into the Gulf stream. Should that be the case significant damage would occur in the Florida keys, along the eastern beaches of Florida, and perhaps along most of the East Coast of the United States. Even the thought of the oil spill affecting such a tremendous area must give the BP executives migraine headaches and horrible nightmares.

To date, BP has agreed to pay claims for the loss of income and business by fishermen, shrimpers, oystermen, seafood restaurants, marinas, and other businesses and individuals who have lost their livelihoods or had their businesses damaged as a result of the oil spill. However, one has to wonder how long BP will maintain these payments should the disaster be as long lasting as many environmentalist now fear. Should damage eventually extend all along the Eastern seaboard the number of damage claims will likely be in the hundreds of thousands with damage amounts in the multi-multi-billions.

No doubt, in addition to the damage claims BP will be flooded with many thousands of lawsuits and attacked by an army of tort attorneys suing for substantial damages. With the Deepwater Horizon BP oil spill already deemed the greatest environmental disaster in American history, and the foreign corporation BP acknowledging responsibility for the spill, it is unlikely that BP will find much sympathy in American courtrooms from American jurors.

Tort lawyers will cleanup as they collect a significant percentage of the multi-billions in damages that will surely the awarded to BP oil spill plaintiffs. A golden age for tort lawyers has begun at a time of tremendous tragedy for many Americans. Probably, tort attorneys will still be handling BP oil spill lawsuits for the next 15 to 20 years. The big question is if even a major tremendously profitable, at least up to now, multi-national oil company such as BP can remain viable as it struggles with the financial and PR liabilities that such a major oil spill and cleanup effort will bring?

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T Boone Pickens, the legendary oilman who at the age of 83 is still an active businessman who now operates a hedge fund, recently appeared on the Larry King show. When asked by Larry King what he thought about the British Petroleum top kill effort to shut down the wild oil well in the Gulf of Mexico brought about by the Deepwater Horizon explosion he said that it was really an act of desperation by BP that had a low probability of success.

As Pickens says about himself he has been around quite awhile and has seen a lot during his lifetime, including quite a lot in the oil patch. Pickens worked for Phillips Petroleum for three years before striking out on his own in 1954. With $2,500 of borrowed money, Pickens and two investors formed an oil and gas firm, Petroleum Exploration Inc., which focused on domestic oil and gas opportunities.

A few years later, he formed Altair Oil & Gas Co. to pursue oil and gas exploration opportunities in western Canada. Both were predecessor companies to Mesa Petroleum, which Pickens took public in 1964. Pickens built Mesa into one of America’s largest independent natural gas and oil companies. Mesa produced more than 3 trillion cubic feet of gas and 150 million barrels of oil from 1964 to 1996. Over the years T. Boone amassed a personal fortune estimated by Fortune Magazine to be about $3 billion.

Pickens’s assessment of the junk shots being carried out by BP along with the top kill operation is that they are also a low probability desperate attempt at stopping the flow of oil now gushing for the 41st day into the Gulf of Mexico. Pickens told Larry King that in his opinion we would still be witnessing the oil gushing into the Gulf 38 days from now. His appearance on the Larry King show was on day 38 of the Deepwater Horizon event.

When asked by King why he was so pessimistic about the outcome of the top kill operation T Boone replied that he was not pessimistic but based upon his considerable experience in oil drilling operations he was being realistic. According to T Boone Pickens the wild oil well will more than likely keep spewing crude oil into the Gulf of Mexico until a relief well can be completed.

An interesting ongoing discussion of the Deepwater oil spill can be found at The Oil Drum website. This is a web site where oil industry engineers, geologists, oil drilling experts, and others with an interest in the oil industry hangout, so much can be learned from the discussion threads that are now taking place about the DeepWater oil spill.

A number of postings concur with T. Boone Pickens assessment that the present efforts by BP have a low probability in killing the oil flow and that it will take a relief well to satisfactorily complete the task. Unfortunately, for BP, the Gulf of Mexico, citizens of the Gulf states, and all the rest of us, the drilling of the relief well will probably take at least two months to complete. Even that time period may be optimistic as with the Deepwater Horizon oil spill event Murphy’s Law seems to be fully operational.

No doubt, BP will feel compelled to continue to initiate low probability of success efforts in order to stop the oil from gushing into the Gulf. Public and government pressure is intense to “do something”. The problem is that fooling around with the damaged oil drilling equipment lying one mile deep in the waters of the Gulf of Mexico is a risky business. BP runs a real risk of creating an additional accident that would increase the flow of oil into the Gulf.

The Deepwater Horizon explosion and oil spill event is a disaster of the first order. While the loss of 11 lives due to the explosion on the Deepwater Horizon drilling rig was tragic enough, the full extent of the tragedy will likely extend over decades. At this time the environmental damage and the damage to the economy of the United States is impossible to calculate but will likely be in the high multi billions of dollars.

Should T. Boone Pickens be correct in his assessment that only a relief well will stop the flow of oil then the long term damage will indeed be frightening in scope. The Deepwater Horizon oil spill event may be the mother of all Black Swans. The event is a horrific reminder of just how badly things can go wrong in a society that depends upon complex technology to supply its energy requirements.

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James Carville, the well known outspoken Louisianian who was a chief political aide to Bill and Hillary Clinton, told CNN’s Anderson Cooper on AC360 Thursday that the administration’s response to the spill has been “lackadaisical” and that Obama was “naive” to trust BP to effectively manage the massive oil spill clean-up effort.

On CNN James Carville said “I’m as good a Democrat as most people, and I think this administration has done some good things. They are risking everything by this ‘go along with BP’ strategy they have that seems like, lackadaisical on this, and Doug is right, they seem like they’re inconvenienced by this, this is some giant thing getting in their way and somehow or another, if you let BP handle it, it’ll all go away. It’s not going away. It’s growing out there. It is a disaster of the first magnitude, and they’ve got to go to Plan B.”

The crude oil has now been pouring into the Gulf of Mexico for over a month. There is a growing sense that the Obama administration has stopped treating the spill as an urgent national emergency even as the impact of the disaster has magnified.

Not until yesterday, critics note, a full 30 days after the oil rig explosion, did federal officials establish a technical team to measure the full extent of the spill. BP has maintained that about 5000 barrels per day is spilling into the Gulf while outside experts estimates are as high as 70,000 barrels per day. What seems obvious, is that BP has attempted to downplay the consequences of the oil spill disaster, even as evidence mounts by the day that the environmental impact is extremely serious and may well last for decades.

It is also obvious that BP is growing increasingly nervous about the potentially billions of dollars in cleanup costs that they are expected to pay as well as the litigation costs of defending themselves against a growing mountain of civil lawsuits. President Obama has even hinted that criminal charges may eventually be filed against BP depending upon the findings of a special presidential commission assigned to investigate the Deepwater Horizon incident.

When a long-term Obama supporter such as James Carville calls the Obama administration naïve in relying on BP to properly clean up the oil spill and to take full responsibility for the disastrous consequences you can bet that there will be serious repercussions for the Obama administration in its handling of the Deepwater Horizon disaster.

Not only do we have an environmental disaster on our hands but the Obama administration likely faces a political disaster of the first magnitude unless the oil spill can be soon capped and an effective cleanup somehow be accomplished. Obama critics have already labeled the Deepwater Horizon event as President Obama’s Katrina.

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