Will BP Cover All Costs of Gulf Spill? Don't Bet On It

Last Updated May 13, 2010 3:00 PM EDT

BP says it will pay all the costs associated with its spill in the Gulf of Mexico. But there's good reason to believe that may not be the case. BP admitted as much! Yes, there's something oxymoronic about that statement, but it tells you why you can expect a fair number of fights -- PR battles, lawsuits etc. -- over how much BP does pay. For reasons of BP's reputation, which has taken quite a hit, it wants to assure us all that it will cover the costs of the devastating spill.

But blanket promises expose you to more than you can yet imagine. There are cleanup costs, then direct economic costs, then secondary and tertiary and ... you get the idea. So BP is hedging.

BP CEO Tony Hayward on May 3:

We will absolutely be paying for the cleanup operation. There is no doubt about that. It's our responsibility -- we accept it fully.
Hayward, two days later: BP "will honour all legitimate claims for business interruption." Pressed for examples of illegitimate claims, he said:
I could give you lots of examples. This is America -- come on. We're going to have lots of illegitimate claims. We all know that.
Politicians from the Gulf coast to Washington already smell a rat here. Hayward probably didn't help matters by throwing an elbow in the direction of "America," since that manages to offend, well, all Americans. (Note to British PR people: if you insult trial lawyers instead, you're on much firmer ground in this country.)

"I'm not sure BP will be able to cover everything, or at the very least, they will start fighting back," Rep. Michelle Rehwinkel Vasilinda, a Democratic state representative from Tallahassee, told me.

You have to wonder whether worries about BP's stance led Hayward to offer an almost-apology in an interview yesterday. Perhaps he was worried about the momentum gathering at the federal level. Sen. Bill Nelson, Democrat of Florida, is co-sponsoring legislation that would raise the federal liability cap for economic damanges to $10 billion from the current $75 million.

This does not exactly reek of trust vis-à-vis BP. Nor does this from Nelson:

BP says it'll pay for this mess. Baloney. They're not going to want to pay any more than what the law says they have to, which is why we can't let them off the hook.
When all is said and done, it's impossible to believe that the disaster won't smack the budgets of Gulf states and in Washington. Florida governor Charlie Crist has already asked the Obama administration for $50 million to provide unemployment benefits to Floridians who lose their jobs as a result of the spill.

Municipal bond traders have their eye on local finances, in particular bonds backed by sales tax revenues. If Florida's tourist industry takes a big hit, said John Mousseau, head of the tax-free municipal bond section at Cumberland Advisors, there's every reason to worry that borrow costs for some localities will rise:

We have been selectively selling bonds in the Gulf area over the past week -- not all bonds in the areas, but clearly ones we felt might be at risk AND where we felt that market prices were appropriate.
So, BP is going to cover all costs? Yeah, right.

Image from tula_7755 via Flickr

  • Carter Dougherty

    Carter Dougherty, a former economic correspondent for the International Herald Tribune and The New York Times, is fascinated by the intersection between policy and business, in the United States and abroad. He shared in a Loeb Award, business journalism's most prestigious, while at the NYT. But he still looks back fondly on his days trudging through central Africa, reporting on Congo, Darfur and other rough spots.