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Gerry McGill
Gerry McGill
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Will BP pay all financial losses caused by Deepwater Horizon oil spill?

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On Tuesday, May 4, 2010 British Petroleum CEO Tony Hayward reiterated BP officials’ earlier statements that the company intends to take care of anyone who is adversely affected by the continuing oil spill in the Gulf caused by the explosion and sinking of the Deepwater Horizon drilling rig. That sounds as good as it gets considering the disaster that the oil spill will cause some, if not all the Gulf Coast states. But, what does this statement really mean and what are the chances that BP really will "take care of anyone who is adversely affected"?

The Oil Pollution Act of 1990, enacted after the Exxon Valdez disaster in Alaska in 1989, provides that BP is responsible for all cleanup costs but caps BP limits to $75 million in damages although BP could be subject to unlimited liability if gross negligence is proved. This week a Texas A&M University research institute estimated the oil spill could have a negative economic impact on the Gulf Coast of $1.6 BILLION. If correct, there is a big gap between $75million and $1.6billion.

Can BP pay $1.6billion? Sure. Last month BP announced a first quarter of 2010 profit of $6billion. Will BP pay $1.6billion? Not likely without costly and protracted litigation which will take years if the litigation in the Exxon Valdez grounding and oil spill in Alaska provides any guidelines. In that case Exxon Mobil Oil Company fought the original jury award of $5billion in punitive damages for almost 20 years until the United States Supreme Court reduced the award to $500million. That means that for almost 20 years those people whose lives and livelihoods were disrupted or destroyed went uncompensated.

My prediction, and I would be happy to be wrong, is that despite all the public relations statements currently coming from British Petroleum’s CEO, they will fight claims just as hard and possibly just as long as Exxon. The reason for this is because, as Nobel Prize Economist Milton Friedman noted, all Corporations, including oil companies, first and foremost obligation is to their shareholders.