Will BP pay for all the oil spill cleanup plus damages?

(Image from Flickr and Mike Licht, NotionsCapital.)

Who will pay for the damage caused by the Great Gulf Oil Spill of 2010?

Everyone is saying BP. As majority lease owner of the Deepwater Horizon oil well that is gushing a mile down on the ocean floor, BP owns most of the responsibility. BP executives have repeatedly said the company will pay for the cleanup and “legitimate claims” for economic and other damages.

But that’s not the whole story. Anadarko and Matsui, who own 35% of the lease, will have to pick up their share of the spill cleanup.

A 1990 law, enacted after the Exxon Valdez spill in Alaska, said the companies with the oil leases would have to pay for the cleanup, plus up to $75 million for economic and natural resources damage. BP has acknowledged that this spill, really a gusher, will cost a lot more than that.

Raising the liability cap
Some senators are trying to raise the cap from $75 million. There are several proposals. Sen. Bob Menendez (D-N.J.) tried to fast-track an increase to $10 billion. But it was blocked by Sen. Lisa Murkowski (R-Alaska). Others, from the Gulf Coast, say it should be one year’s profit or $150,000 million, whichever is less – to protect the little guy (guy meaning oil company.) BP is expected to see a profit of $23B this year.

The 1990 law also set up an Oil Spill Trust Fund to help pay for major spills. With a tax of 8 cents a barrel the fund is now at $1.6B, but by law just $1B of that can be spent on any one event.

Others involved in the accident, who will probably have to pay something, are Transocean, owner of the rig; Halliburton, who cemented the well, and Cameron International, maker of the faulty blowout preventer.

Then there's insurance
But they won’t have to pay all of it themselves. Each has insurance, and that insurance has re-insurance. The loss to insurance companies for this incident is estimated at between $1.5B and $3.5B by Swiss Re, whose own losses in the accident are estimated at about $200 million. The higher $3.5B figure could be reached if the oil goes ashore, which triggers another section in the policy.

Total insurance losses to date are about $700 million. The rig itself was insured at Lloyds of London for $560 million, which has already been paid, according to The Guardian in England, where BP is headquartered.

BP said at mid-week it had paid about $1.5 million in claims to fisherman and had not yet questioned the legitimacy of any claims. It also paid $25M in grants to each of the four affected states.

But government and vulnerable businesses, like tourism and fishing, are worried payment may be slow and not in full.

They also are concerned because BP asked out-of-work fishermen to sign waivers not to sue before hiring them to help with the cleanup.

In the Valdez case, some claims weren’t paid for two decades and the Supreme Court reduced punitive damages from $2.5B to $500M at the end of long drawn-out court fight. NOAA estimates there is still 21,000 gallons of oil on the Alaska shoreline.

(Sources: E&E Daily, Greenwire, E&E TV, LA Times, New York Times, The Guardian, The Hill, National Post,
PlanetArk. )