World Business

British bankruptcy for BP is Obama's worst nightmare

By Caroline Baum (China Daily)
Updated: 2010-06-26 14:04

BP is already the most reviled company in America. Two of its refineries accounted for 97 percent of the violations (a total of 862, of which 760 were "egregious willful") in the refining industry over the last three years, according to the Center for Public Integrity. It holds the record for the largest fine ($87 million) ever levied by the Occupational Safety and Health Administration. Its public relations couldn't be worse if it disbanded its PR department.

In the court of public opinion, BP is already about as low as it can go. So why shouldn't it try, as a matter of business, to limit its liability?

The government isn't the only one with leverage. If BP were to file for bankruptcy, who would compensate Gulf residents whose livelihood and sole means of support were destroyed by the spill?

The US taxpayer. To avoid being seen as someone who bailed out Wall Street and abandoned Main Street, Obama would probably ask Congress for money to compensate victims and line up to be paid with other creditors.

What if BP chose to file for bankruptcy in the United Kingdom, something that's well within its rights? No doubt London courts would deliver an outcome more favorable to BP. And they're apt to be less generous when it comes to paying damages to folks three times removed from directly affected claimants.

No wonder Congress wants to shut down that option. House Judiciary Chairman John Conyers, Democrat of Michigan, introduced a bill that would, among other things, prevent BP from seeking bankruptcy protection in the UK.

If the goal is to get relief as quickly as possible to the legitimate victims of the oil spill, then using BP as a pinata isn't a great idea, Kaufman said. (Nor was sending Attorney General Eric Holder to New Orleans to threaten BP with criminal prosecution a way to foster an environment of cooperation on the clean-up.)

Related readings:  BP shuts down cap system to probe problem  Oil spill costs BP $2 billion   BP estimates oil spill up to 100,000 bpd in document  BP says claim payments exceed $100 million

No one knows whether BP agreed in writing to the $20 billion escrow fund or to Feinberg's power of attorney. Jon Pack, a London-based BP spokesman, couldn't comment.

BP has huge assets and tremendous earning capability, at least until we figure out how to power our cars with wind. While Kaufman is right in theory that BP should consider the bankruptcy option, in practice it would make life hard for the company.

Why? Energy is already a highly regulated industry - at least that's what everyone says. And it's bound to become more highly regulated following the BP spill.

The next time BP applied for a drilling permit, it might find that regulators had found religion. While a company can't be denied a permit solely on account of bankruptcy, according to Westbrook, I bet regulators could find enough "egregious willful" violations to prevent BP from expanding its US business.

Caroline Baum is a Bloomberg News columnist. The opinions expressed are her own.