Gulf Oil Spill Could Cost BP as Much as $37 Billion

Last Updated Jun 8, 2010 12:43 PM EDT

Tomorrow will be the 50th day since the Deepwater Horizon oil rig exploded and started sinking in the Gulf of Mexico, and about all we know for sure now is how much we didn't really know then, when we naively wrote about 5,000 barrels a day leaking into the gulf. It's all a deep, dark, murky, and greasy mystery: How much oil is flowing? How badly will it damage the ecosystems and economies around the Gulf Coast? What about the Atlantic Coast? How much will all this cost? Who will pay? Will BP survive? Will the pelicans?

BP has said from the beginning that it would pay for the clean up and pay for the damages, but that could cost as much as $37 billion, Credit Suisse estimated on June 2. That includes $23 billion in clean up costs and $14 billion in claims paid to aggrieved watermen, tourism officials, environmentalists, and more.

Scientists now believe that 30,000 barrels a day are gushing out of that "leak" and that BP, the company that owns the exploded well, is now successfully capturing as much as half of that. More than 900,000 barrels of oil have probably already spilled. By comparison, the 1989 Exxon Valdez spill off the coast of Alaska totaled 250,000 barrels. And 21 years later, there's still environmental damage in Prince William Sound, according to an environmental report published in the Washington Post. Most fauna and flora have returned, but oil still gunks up shelves below the surface of the sea.

Remember when President Clinton drew a legal point with "It depends on what the meaning of the word 'is' is"? I expect BP to be drawing out its legal arguments for decades over which petitioners were legitimately damaged by the spill and how damaged they were. The precedent was set by Exxon, which spent 19 years appealing the $5 billion in damages a jury assessed against the firm. Finally, the Supreme Court accommodated the oil giant, dramatically reducing the damage award.

BP has lost about a third of its market value since the explosion, and over at The New York Times, Andrew Ross Sorkin has hypothesized that the company could go bankrupt. That's a slick move that would allow it to simply shirk off all of its spill-related debts, and another big oil company could buy it, getting its expertise, equipment, properties, and operating wells for pennies on the dollar.

Predictions, anyone? I'm going with the (literal) muddle-through scenario. The already beaten down Gulf Coast will get enough money from BP and the Feds to keep limping along. The waterways and the birds will take a hit, but they won't disappear altogether. Some oil will seep over to the Atlantic side, but Florida beaches that depend on tourism will find the cash to clean the sands or dredge nice new sand. BP will find a way to contain its costs, faster than it contained the oil (though it will eventually do that, capturing and selling most of it.) People will continue to be really angry about it all, and we will also continue to consume oil in large quantities. As a matter of fact, one of the other things the White House said this week was that it would move as quickly as possible to open up that Gulf Coast to shallow water, close-in drilling. Ironically, that's supposed to make those suffering (and oil-work dependent) communities happier.

Illustration by Mike Licht of NotionsCapital.com
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