US government plans to take BP to the cleaners over spill

15 July 2010 15 July 2010

BonTrade

The US government outlined a plan to take the fourth biggest company in the world, BP, to the cleaners yesterday over the Gulf oil spill, as a US Congressional committee looks to impose a seven year ban for BP on any new US offshore drilling.

Although the proposed ban does not name BP itself, the ban would apply to any company that has experienced 10 or more deaths in the last seven years. This clearly is aimed at oil company BP, so what are the implications for the US and the UK?

Fourth Biggest Company in the World by Turnover – BP

BP is the fourth biggest company in the world by turnover, with a annual income of $246 billion dollars and employs 97,600 people worldwide (source Wikipedia). Only Wal Mart, Exxon and Shell are listed to be larger than BP by turnover.

BP directly employs around 25 percent of it’s workforce in the US, so that’s around 24,000 US jobs at risk if BP went to the wall anytime soon.

And the Six Month US Oil Driiling Ban?

Well yesterday, Sen. Mary Landrieu, a Democrat from Louisiana, said that she has urged the Obama administration to drop its new moratorium on deepwater, floating oil rigs because “it could cost more jobs than the spill itself.”

Landrieu, speaking at a US Chamber of Commerce jobs summit, said the moratorium on floating rigs would be particularly damaging because they can be easily moved elsewhere.

The floating rigs are “some of the best rigs in the world, idle at $500,000 a day at a minimum,” Landrieu said. “They’re not going to stay idle until November 30.”

While banning oil companies from deepwater drilling may sound like a reasonable idea for the US government to impose, many predict that oil companies including BP will be severly affected in loss of income, costs to maintain idle rigs and equiptment.

The BP Libya issue & Hilary Clinton

BP has also come under further fire from the US government after secretary of state Hilary Clinton demanded that BP suspend offshore drilling in Libya.

Allegations had surfaced that BP lobbied the UK government to release the UK Lockerbie bomber in 2007.

Clinton responded to reports that BP had lobbied the British government for the release of Abdel Basset al-Megrahi to help it clinch lucrative drilling contracts off the coast of Libya. “I have received the letter and we will obviously look into it,” she said.

How can BP Affect the UK?

BP is the UK’s biggest company by a long way, roughly five times bigger than Tesco and UK taxpayers could end up bailing out BP in the wake of the Gulf of Mexico oil spill disaster.

UK Ministers are concerned about the effect of a BP collapse on British pensioners, whose retirement income relies on the value of the company’s shares as £1 out of every £7 paid out in dividends to British pension pots comes from BP.

No Worries, Exxon Will Come to the Rescue, Right?

Well no, actually Exxon is unlikely to purchase BP, comments Barclay’s Paul Y. Cheng in a note yesterday.

“Unless the Obama Administration is willing to offer assurance in the form of a liability cap, we are skeptical that any CEO will venture into a wholesale takeover of BP at this moment,” the Barclays analyst said in the report.

And that’s not surprising really, as who would even consider investing into, or taking over a company that may face unlimited liabilities for the Gulf oil spill cleanup, together with a heavy handed US administration who seem bent on cutting down any future income in the US for troubled BP.