BP loses 15 percent of market value as U.S. launches criminal probe of spill

By Steven Mufson and Theresa Vargas
Washington Post Staff Writer
Wednesday, June 2, 2010; A01

As BP hacked away at a pipe gushing oil at the bottom of the Gulf of Mexico, investors sawed off 15 percent, or $21.1 billion, of the company's market value Tuesday.

Attorney General Eric H. Holder Jr., during a trip to the Gulf Coast, announced that the Justice Department had launched criminal and civil investigations, adding to pessimism among BP investors reeling from the failed attempt to plug the leaking well over the weekend.

BP, the world's fourth-largest company before the April 20 blowout on the Deepwater Horizon drilling rig, has lost a staggering $74.4 billion, or 40 percent, of its market value in six weeks.

Although investment analysts say the company has pockets deep enough to pay for mounting claims and cleanup costs, the political outcry for making BP pay has added to the uncertainty surrounding its future, especially while oil is still leaking into the Gulf of Mexico.

President Obama vowed a "full and vigorous accounting" of the causes of the oil spill disaster in the gulf, telling the leaders of a new commission that they should pursue the trail of blame without limits. Separately, the Justice Department told a federal judge in Houston it opposed the request by Transocean, owner of the Deepwater rig, to limit its liability to $27 million under a 1851 maritime law. "This is cannot do," the department said in its filing.

Calls for punishing BP intensified. Sierra Club Executive Director Michael Brune said: "BP should pay. Not just for the cleanup, but for the lives lost and the natural treasures destroyed." And on the Web site Talking Points Memo, former labor secretary Robert Reich urged Obama to put BP's American operations into temporary receivership.

Meanwhile, BP had begun yet another effort to deal with the spill, using a giant lobster-claw-like slicer to cut off the old damaged pipe that has been twisted on the seafloor. A saw then worked on the remaining section of the blowout preventer to make it easier to get a tight fit later this week if BP can successfully lower a new apparatus on top to funnel oil and gas to the surface.

But the national incident commander, Coast Guard Adm. Thad Allen, did little to raise hopes of a quick end to the crisis, saying "We've got to keep our heads in the game; we've got to keep our shoulders to the wheel."

The tense relationship between the Obama administration and BP took a more adversarial turn with Holder's trip. He said that Justice was reviewing statutes such as the Clean Water Act and Oil Pollution Act of 1990, which could carry penalties of $1,100 for every barrel of crude spilled into the gulf, or more if negligence is proved. Legal experts said it is likely that BP will face at least a civil federal lawsuit and is already in violation of environmental laws.

In addition, criminal prosecutors are examining the possibility of false statements, obstruction of justice and conspiracy, federal law enforcement sources said, though they would not say whether evidence of such crimes has emerged. Legal experts said this means that investigators are exploring whether BP ignored warning signs before the explosion, falsified records or statements to regulators, or tampered with testing equipment.

Holder did not specify BP as the target of investigation. Numerous contractors are involved with the Deepwater rig.

The prospect of criminal charges, especially if filed against the corporation as well as individuals, could threaten BP's leases with the Interior Department and weaken its position in claims negotiations. Criminal charges put the accounting firm Arthur Andersen out of business, but other companies that have been the subject of criminal probes have settled and paid fines.

While conceding that it is very difficult to convict a corporation of a felony, Robert Weiss, who represents vacation homeowners suing BP, said: "It would be nightmare for them to be convicted of a felony. It would have a tremendous effect on the ability of the company to do business as well as their subsequent liability."

In addition to federal charges, BP could face state prosecutions. "If BP cut corners in destroying our gulf, somebody will pay and it won't just be money -- they will certainly be subjected to criminal laws," said Mississippi Attorney General Jim Hood, one state official who met with Holder. He added: "From what I've seen, a grand jury needs to review this thing."

Investment analysts were less worried about BP's ability to weather the oil spill, though their estimates of the costs are rising.

A report by investment firm Raymond James nearly tripled its May 4 estimate of the cost to BP in 2010 and 2011 to $7.5 billion. Alex Morris, energy research analyst, said: "Spiraling costs are getting more and more out of control. And we thought this thing was going to be stemmed far before today and we're still waiting on that." BP says it's spent about a$1 billion since the start of the crisis.

But Morris said that is still well within BP's means. "I don't think existential threat is the right word for this," he said.

Brian Youngberg, an oil analyst with Edward Jones, said that after paying out dividends at the current rate of $10 billion a year, BP still has $5 billion to $10 billion a year in cash that could be used to help cover costs. In addition to 400,000 barrels a day of oil it produces elsewhere in the Gulf of Mexico, BP earns money extracting oil from Angola to Russia, from Iraq to Alaska. The company operates wells, refineries and gas stations in more than 100 countries. In addition, the company's balance sheet is not highly leveraged, meaning BP could borrow more money if necessary.

BP has said it would pay all "legitimate claims," but Tuesday showed the first sign that that doesn't mean that anything goes.

Louisiana Gov. Bobby Jindal (R) made an emotional plea for the government to force BP to pay for the construction of sand berms that have been approved by the Coast Guard. The federal government has issued permits for 50 miles of berm, but work has begun only on a test site at Scofield Island in part because of uncertainty about who will pay.

The estimated $16 million cost of building the test berm berm will be borne by BP or the federal Oil Spill Liability Trust Fund, Allen said last week. If the state wants to build the other five berms, Allen added, it would have to pay for them without any guarantee of reimbursement.

Jindal and Louisiana parish presidents, speaking after a session of the National Incident Command Barrier Island Berm meeting, said the federal government should pressure BP to pay for beefing up more than 100 miles of Louisiana barrier islands.

Asked about the company's position on paying for the barrier island buildup, a BP spokesman said the company "is studying the issue," which he referred to as a "hurricane relief project."

Tony Russell, press secretary for the Deepwater Horizon Oil Spill Response, said of the berms: "We have directed BP to pay for one, and we are evaluating the additional berms for their impact on mitigating the oil, however, there is no reason why Governor Jindal can't start building the first one."

Other precautions along the coast continued. The National Oceanic and Atmospheric Administration closed additional areas to fishing, extending the northern and southern boundaries of the closed fishing area into waters off eastern Alabama and the western tip of the Florida panhandle.

Despite precautions, however, the first patches of oil washed up on a tourist beach in coastal Alabama as well as parts of Mississippi. Mississippi Gov. Haley Barbour said Tuesday that a two-mile-long, three-foot-wide strand of caramel-colored oil had been found on Petit Bois Island, a barrier island near the Mississippi-Alabama border.

The discovery means Louisiana, Alabama and Mississippi have all been hit by oil.

Vargas reported from New Orleans. Staff writers Jerry Markon and Marc Kaufman in Washington contributed.

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