11-06-2010, 08:00 AM
Thursday, June 10, 2010
June 10 2010: BP, Forrest Gump, Mr. Bean and the White House
![[Image: BrownPelican1.jpg]](http://4.bp.blogspot.com/_9ZzZquaXrR8/TBFCYYp_IzI/AAAAAAAAF-w/hlXR-DFEqLk/s1280/BrownPelican1.jpg)
Charlie Riedel A Last Farewell June 3, 2010
Brown Pelican covered in oil on the beach at East Grand Terre Island along the Louisiana coast
Ilargi: Matt Simmons knows oil. His "Twilight in the Desert" is one of the best books on the topic, highly recommended. Simmons also knows finance; he’s, after all, an oil banker. And he insists that both the Gulf spill is in fact much worse than BP and the White House are willing to admit, and that BP's liability commitments will bankrupt it within weeks. While there will always be the notion that Simmons says what he does in order to turn a profit, I personally lend quite a bit of weight to what he's been saying since the spill started. SImmons is one of the few voices left in the drama worth listening to.
BP has now officially, as I've said was likely to happen, seamlessly moved from "just" an environmental disaster into an economic calamity as well. Don’t underestimate the impact of this. BP is the planet's fourth largest enterprise. For one thing, this means the company has vast political influence, especially in the US and UK. I saw a line today I had been waiting for for some time, in this Reuters article:
One party you don’t want to be when BP's bankruptcy lands square squash on the table is a Louisiana fisherman or a Florida tourist operator. British pensioners first! Sure, Obama has declared that BP is liable for all damages yada yada, but there’s a long list as we speak of Gulf Coast residents who can’t hardly squeeze a penny out of the company even now, and that’s before any serious litigation has started.
It’s all just posturing. By the time the real claims arrive, BP will likely be very deeply mired in interminable Chapter 11 and/or subsequent proceedings, and the little man will be dead broke and waiting for years to see if he may ever get a single penny for what he worked long and hard to build up, whether he’s Forrest Gump in Terrebonne Parish or Mr. Bean in Coventry.
Don’t help the little man, help BP, says the British government. And that will be the political stance, though certainly not the public message, going forward, on both sides of the pond. Nothing has changed as of yet and nothing will until Gump and Bean reach for their pitchforks.
Goldman Sachs or BP, the politicians’ reaction remains the same. Screw whoever’s not in your circle, and use (your power over) their money to pay off who is. Corporations rule this planet, not the people that live on it.
BP will be a showcase for several nations at once, a shining example for how much of the political power really is in the hands of the people. I for one hold out very little hope, as long as the present corporate political systems remain in place. Britain, I bet you, will use its pensioners’ tax money to "save" BP in order to save its pensioners. And so forth. And then somewhere down the road that money will get lost. Think AIG.
All we're left with to live in is a hologram. And we can just wait and see, because the time will come, till all we’ve left to spend, grow and eat also exists only in a parallel universe.
Unless and until we find ourselves some sand, oil-stained or not, to draw a line in.
And don’t kid yourselves, it’s not about BP, one single oil company, and it’s not about Obama or Cameron, about single politicians. With perhaps slight differences, Shell and Exxon perform within the same dismal agenda's BP does, and there's no politician left in our Western hemishpere who rises to true power and has not been pre-empted by the system he or she voluntarily chooses to function in, and who doesn't voluntarily participate in perpetuating the hologram their voters long for in order to continue their feeling of comfort, so they can sit in their oversized homes and watch pictures of dying birds on oversized plasma TV's.
And please don’t be too eager to proclaim you're different, or better than that. That’s nothing but the easy way out.
Remember, you’re not watching real life with real people, you’re watching a 24/7 theater play that has no other reason to be than to provide you with what it knows beforehand you will respond positively to. Remember that, and then look at the dying pelicans. You may be running out of chances to make it right. Is that the way you want your life to be?
[URL="http://www.huffingtonpost.com/2010/06/09/bp-worth-more-dead-than-alive_n_606968.html"]BP Now Worth More Dead Than ALive
by AP [/URL]
by Nin-Hai Tseng - Fortune [/URL]
June 10 2010: BP, Forrest Gump, Mr. Bean and the White House
![[Image: BrownPelican1.jpg]](http://4.bp.blogspot.com/_9ZzZquaXrR8/TBFCYYp_IzI/AAAAAAAAF-w/hlXR-DFEqLk/s1600/BrownPelican1.jpg)
Charlie Riedel A Last Farewell June 3, 2010
Brown Pelican covered in oil on the beach at East Grand Terre Island along the Louisiana coast
Ilargi: Matt Simmons knows oil. His "Twilight in the Desert" is one of the best books on the topic, highly recommended. Simmons also knows finance; he’s, after all, an oil banker. And he insists that both the Gulf spill is in fact much worse than BP and the White House are willing to admit, and that BP's liability commitments will bankrupt it within weeks. While there will always be the notion that Simmons says what he does in order to turn a profit, I personally lend quite a bit of weight to what he's been saying since the spill started. SImmons is one of the few voices left in the drama worth listening to.
BP has now officially, as I've said was likely to happen, seamlessly moved from "just" an environmental disaster into an economic calamity as well. Don’t underestimate the impact of this. BP is the planet's fourth largest enterprise. For one thing, this means the company has vast political influence, especially in the US and UK. I saw a line today I had been waiting for for some time, in this Reuters article:
Under pressure over BP, PM Cameron says UK ready to help
The BBC has this:Britain stands ready to help BP with its clean-up efforts following the Gulf of Mexico oil spill, Prime Minister David Cameron said on Thursday as he came under intense pressure at home to stand up for the oil giant. In his first public comments about the crisis, Cameron said he would raise it with U.S. President Obama when they next spoke. That will be a delicate balancing act between upholding British interests and nurturing a key diplomatic relationship.
BP [..] accounts for 12-13 percent of dividend payouts in Britain. Pension funds and other investors are heavily reliant on it.
BP [..] accounts for 12-13 percent of dividend payouts in Britain. Pension funds and other investors are heavily reliant on it.
Why is BP important to the UK economy?
That should put you right in line with what will be playing out now. BP's bankruptcy looks like a foregone conclusion. That is, unless the US and UK governments step in, and do so broadly and very loudly. With both money and legal changes. The former, because BP faces far more in lawsuits and damage claims than it has in liquidity (its shares are now worth less than its assets, always an alarming sign). The latter, well, for more or less the same reason. "The government must put down a marker with the US administration that the survival and long-term prosperity of BP is a vital British interest," the former British ambassador to the US, Sir Christopher Meyer, has told the BBC. He urged Prime Minister David Cameron to raise the issue in his scheduled conversation with US President Barack Obama over the weekend.[..]
"When you consider the huge exposure of British pension funds to BP it starts to become a matter of national concern if a great British company is being continually beaten up on the airwaves," [London Mayor] Boris Johnson said.
UK pension funds do indeed have big holdings of BP shares and the company says that £1 of every £7 paid in dividends to pension funds by FTSE 100 companies last year came from BP. It is estimated that about 18 million people in the UK either own BP shares or pay into a pension fund that holds BP shares.
"When you consider the huge exposure of British pension funds to BP it starts to become a matter of national concern if a great British company is being continually beaten up on the airwaves," [London Mayor] Boris Johnson said.
UK pension funds do indeed have big holdings of BP shares and the company says that £1 of every £7 paid in dividends to pension funds by FTSE 100 companies last year came from BP. It is estimated that about 18 million people in the UK either own BP shares or pay into a pension fund that holds BP shares.
One party you don’t want to be when BP's bankruptcy lands square squash on the table is a Louisiana fisherman or a Florida tourist operator. British pensioners first! Sure, Obama has declared that BP is liable for all damages yada yada, but there’s a long list as we speak of Gulf Coast residents who can’t hardly squeeze a penny out of the company even now, and that’s before any serious litigation has started.
It’s all just posturing. By the time the real claims arrive, BP will likely be very deeply mired in interminable Chapter 11 and/or subsequent proceedings, and the little man will be dead broke and waiting for years to see if he may ever get a single penny for what he worked long and hard to build up, whether he’s Forrest Gump in Terrebonne Parish or Mr. Bean in Coventry.
Don’t help the little man, help BP, says the British government. And that will be the political stance, though certainly not the public message, going forward, on both sides of the pond. Nothing has changed as of yet and nothing will until Gump and Bean reach for their pitchforks.
Goldman Sachs or BP, the politicians’ reaction remains the same. Screw whoever’s not in your circle, and use (your power over) their money to pay off who is. Corporations rule this planet, not the people that live on it.
BP will be a showcase for several nations at once, a shining example for how much of the political power really is in the hands of the people. I for one hold out very little hope, as long as the present corporate political systems remain in place. Britain, I bet you, will use its pensioners’ tax money to "save" BP in order to save its pensioners. And so forth. And then somewhere down the road that money will get lost. Think AIG.
All we're left with to live in is a hologram. And we can just wait and see, because the time will come, till all we’ve left to spend, grow and eat also exists only in a parallel universe.
Unless and until we find ourselves some sand, oil-stained or not, to draw a line in.
And don’t kid yourselves, it’s not about BP, one single oil company, and it’s not about Obama or Cameron, about single politicians. With perhaps slight differences, Shell and Exxon perform within the same dismal agenda's BP does, and there's no politician left in our Western hemishpere who rises to true power and has not been pre-empted by the system he or she voluntarily chooses to function in, and who doesn't voluntarily participate in perpetuating the hologram their voters long for in order to continue their feeling of comfort, so they can sit in their oversized homes and watch pictures of dying birds on oversized plasma TV's.
And please don’t be too eager to proclaim you're different, or better than that. That’s nothing but the easy way out.
Remember, you’re not watching real life with real people, you’re watching a 24/7 theater play that has no other reason to be than to provide you with what it knows beforehand you will respond positively to. Remember that, and then look at the dying pelicans. You may be running out of chances to make it right. Is that the way you want your life to be?
[URL="http://www.huffingtonpost.com/2010/06/09/bp-worth-more-dead-than-alive_n_606968.html"]BP Now Worth More Dead Than ALive
by AP [/URL]
The financial toll of the oil spill disaster in the Gulf of Mexico escalated Wednesday as BP's stock plummeted to a 14-year low and fishermen, businesses and property owners who have filed damage claims with the company angrily complained of delays, excessive paperwork and skimpy payments that have put them on the verge of going under. The oil company captured an ever larger-share of the crude gushing from the bottom of the sea and began bringing in more heavy equipment to help in the effort, including a production ship and a tanker from the North Sea that will allow the system to process larger quantities of oil and better withstand tropical storms.
The containment efforts played out as investors deserted BP amid fears that the company might be forced to suspend dividends, end up in bankruptcy and find itself overwhelmed by the cleanup costs, penalties, damage claims and lawsuits generated by the biggest oil spill in U.S. history. Shrimpers, oystermen, seafood businesses, out-of-work drilling crews and the tourism industry all are lining up to get paid back the billions of dollars washed away by the disaster, and tempers have flared as locals direct outrage at BP over what they see as a tangle of red tape.
"Every day we call the adjuster eight or 10 times. There's no answer, no answering machine," said Regina Shipp, who has filed $33,000 in claims for lost business at her restaurant in Alabama. "If BP doesn't pay us within two months, we'll be out of business. We've got two kids." An Alabama property owner who has lost vast sums of rental income angrily confronted a BP executive at a town meeting. The owner of a Mississippi seafood restaurant said she is desperately waiting for a check to come through because fewer customers come by for shrimp po-boys and oyster sandwiches.
Some locals see dark parallels to what happened after Hurricane Katrina, when they had to wait years to get reimbursed for losses. "It really feels like we are getting a double whammy here. When does it end?" said Mark Glago, a New Orleans lawyer who is representing a fishing boat captain in a claim against BP.
BP spokesman Mark Proegler disputed any notion that the claims process is slow or that the company is dragging its feet. Proegler said BP has cut the time to process claims and issue a check from 45 days to as little as 48 hours, provided the necessary documentation has been supplied. BP officials acknowledged that while no claims have been denied, thousands and thousands of claims had not been paid by late last week because the company required more documentation.
At the bottom of the sea, the containment cap on the ruptured well is capturing 630,000 gallons a day and pumping it to a ship at the surface, and the amount could nearly double by next week to roughly 1.17 million gallons, said Coast Guard Adm. Thad Allen, who is overseeing the crisis for the government. A second drilling vessel that will arrive within days is expected to greatly boost capacity. BP also plans to bring in the tanker from the North Sea on Monday to help transport oil and an incinerator to burn off some of the crude. The tanker is currently used to shuttle oil from North Sea rigs to the shores of Scotland, and its deployment in the Gulf has been part of the broader plan to expand the amount of crude brought to the surface once a new and improved cap-and-collection system is installed over the leaking well.
The government has estimated 600,000 to 1.2 million gallons are leaking per day, but a scientist on a task force studying the flow said the actual rate may be between 798,000 gallons and 1.8 million. Crews working at the site toiled under oppressive conditions as the heat index soared to 110 degrees and toxic vapors emanated from the depths. Fireboats were on hand to pour water on the surface to ease the fumes. Allen also confronted BP over the complaints about the claims process, warning the company in a letter: "We need complete, ongoing transparency into BP's claims process including detailed information on how claims are being evaluated, how payment amounts are being calculated and how quickly claims are being processed."
The admiral this week created a team including officials from the Federal Emergency Management Agency to help with the damage claims. It will send workers into Gulf communities to provide information about the process. He also planned to discuss the complaints with BP officials Wednesday. Under federal law, BP is required to pay for a range of damage, including property losses and lost earnings. Residents and businesses can call a telephone line to report losses, file a claim online and seek help at one of 25 claims offices around the Gulf. Deckhands and other fishermen generally need to show a photo ID and documentation such as a pay stub showing how much money they typically earn.
To jump-start the process, BP was initially offering an immediate $2,500 to deckhands and $5,000 to fishing boat owners. Workers can receive additional compensation once their paperwork and larger claims are approved. BP said it has paid 18,000 claims so far and has hired 600 adjusters and operators to handle the cases. The oil giant said it expects to spend $84 million through June alone to compensate people for lost wages and profits. That number could grow as new claims are received. When it is all over, BP could be looking at total liabilities in the billions, perhaps tens of billions, according to analysts.
BP stock dropped $5.45, or 16 percent, Wednesday - easily its worst day since the April 20 rig explosion that set off the spill. In the seven weeks since then, the company has lost half its market value. The latest slide came after Interior Secretary Ken Salazar promised a Senate energy panel to ask BP to compensate energy companies for losses if they have to lay off workers or suffer economically because of the Obama administration's six-month moratorium on deepwater drilling.
Calculating what is owed to victims of the spill has proved challenging. David Walter owns an Alabama company that makes artificial reefs that anglers buy and drop in the Gulf to attract fish, but state regulators stopped issuing permits for the reefs on May 4 because of the oil spill - effectively killing off $350,000 in expected business. When Walter called a claims adjuster working for BP, he was told to provide four years of invoices for May, June and July along with tax returns for those years. Walter said he sent the forms by overnight mail, but the adjuster assigned to his case changed offices and could not be found. The documents were lost.
After making more inquiries, Walter said, he was instructed to gather the same documents and this time go to a claims office. There, an adjuster told Walter he would be eligible for only a $5,000 payment since his tax returns showed a technical business loss when depreciation was factored in. "I said that's not fair because if you say that, then I have to go out of business and I lose everything," Walter said. He is now working with an accounting firm to calculate his losses. Not everyone had complaints about the claims process.
Bart Harrison of Clay, Ala., filed his first claim on Wednesday morning for lost rental income on his coastal property and expected to have a check for $1,010 within a few hours. The only documentation required was tax returns and rental histories for his units, which were both easy to provide. "The guy I talked to was knowledgeable and respectful. It seemed like he really wanted to write a check and please me since it was my first time in," Harrison said.
[URL="http://money.cnn.com/2010/06/09/news/companies/simmons_gulf_oil_spill.fortune/index.htm"]The Gulf Coast oil spill's Dr. DoomThe containment efforts played out as investors deserted BP amid fears that the company might be forced to suspend dividends, end up in bankruptcy and find itself overwhelmed by the cleanup costs, penalties, damage claims and lawsuits generated by the biggest oil spill in U.S. history. Shrimpers, oystermen, seafood businesses, out-of-work drilling crews and the tourism industry all are lining up to get paid back the billions of dollars washed away by the disaster, and tempers have flared as locals direct outrage at BP over what they see as a tangle of red tape.
"Every day we call the adjuster eight or 10 times. There's no answer, no answering machine," said Regina Shipp, who has filed $33,000 in claims for lost business at her restaurant in Alabama. "If BP doesn't pay us within two months, we'll be out of business. We've got two kids." An Alabama property owner who has lost vast sums of rental income angrily confronted a BP executive at a town meeting. The owner of a Mississippi seafood restaurant said she is desperately waiting for a check to come through because fewer customers come by for shrimp po-boys and oyster sandwiches.
Some locals see dark parallels to what happened after Hurricane Katrina, when they had to wait years to get reimbursed for losses. "It really feels like we are getting a double whammy here. When does it end?" said Mark Glago, a New Orleans lawyer who is representing a fishing boat captain in a claim against BP.
BP spokesman Mark Proegler disputed any notion that the claims process is slow or that the company is dragging its feet. Proegler said BP has cut the time to process claims and issue a check from 45 days to as little as 48 hours, provided the necessary documentation has been supplied. BP officials acknowledged that while no claims have been denied, thousands and thousands of claims had not been paid by late last week because the company required more documentation.
At the bottom of the sea, the containment cap on the ruptured well is capturing 630,000 gallons a day and pumping it to a ship at the surface, and the amount could nearly double by next week to roughly 1.17 million gallons, said Coast Guard Adm. Thad Allen, who is overseeing the crisis for the government. A second drilling vessel that will arrive within days is expected to greatly boost capacity. BP also plans to bring in the tanker from the North Sea on Monday to help transport oil and an incinerator to burn off some of the crude. The tanker is currently used to shuttle oil from North Sea rigs to the shores of Scotland, and its deployment in the Gulf has been part of the broader plan to expand the amount of crude brought to the surface once a new and improved cap-and-collection system is installed over the leaking well.
The government has estimated 600,000 to 1.2 million gallons are leaking per day, but a scientist on a task force studying the flow said the actual rate may be between 798,000 gallons and 1.8 million. Crews working at the site toiled under oppressive conditions as the heat index soared to 110 degrees and toxic vapors emanated from the depths. Fireboats were on hand to pour water on the surface to ease the fumes. Allen also confronted BP over the complaints about the claims process, warning the company in a letter: "We need complete, ongoing transparency into BP's claims process including detailed information on how claims are being evaluated, how payment amounts are being calculated and how quickly claims are being processed."
The admiral this week created a team including officials from the Federal Emergency Management Agency to help with the damage claims. It will send workers into Gulf communities to provide information about the process. He also planned to discuss the complaints with BP officials Wednesday. Under federal law, BP is required to pay for a range of damage, including property losses and lost earnings. Residents and businesses can call a telephone line to report losses, file a claim online and seek help at one of 25 claims offices around the Gulf. Deckhands and other fishermen generally need to show a photo ID and documentation such as a pay stub showing how much money they typically earn.
To jump-start the process, BP was initially offering an immediate $2,500 to deckhands and $5,000 to fishing boat owners. Workers can receive additional compensation once their paperwork and larger claims are approved. BP said it has paid 18,000 claims so far and has hired 600 adjusters and operators to handle the cases. The oil giant said it expects to spend $84 million through June alone to compensate people for lost wages and profits. That number could grow as new claims are received. When it is all over, BP could be looking at total liabilities in the billions, perhaps tens of billions, according to analysts.
BP stock dropped $5.45, or 16 percent, Wednesday - easily its worst day since the April 20 rig explosion that set off the spill. In the seven weeks since then, the company has lost half its market value. The latest slide came after Interior Secretary Ken Salazar promised a Senate energy panel to ask BP to compensate energy companies for losses if they have to lay off workers or suffer economically because of the Obama administration's six-month moratorium on deepwater drilling.
Calculating what is owed to victims of the spill has proved challenging. David Walter owns an Alabama company that makes artificial reefs that anglers buy and drop in the Gulf to attract fish, but state regulators stopped issuing permits for the reefs on May 4 because of the oil spill - effectively killing off $350,000 in expected business. When Walter called a claims adjuster working for BP, he was told to provide four years of invoices for May, June and July along with tax returns for those years. Walter said he sent the forms by overnight mail, but the adjuster assigned to his case changed offices and could not be found. The documents were lost.
After making more inquiries, Walter said, he was instructed to gather the same documents and this time go to a claims office. There, an adjuster told Walter he would be eligible for only a $5,000 payment since his tax returns showed a technical business loss when depreciation was factored in. "I said that's not fair because if you say that, then I have to go out of business and I lose everything," Walter said. He is now working with an accounting firm to calculate his losses. Not everyone had complaints about the claims process.
Bart Harrison of Clay, Ala., filed his first claim on Wednesday morning for lost rental income on his coastal property and expected to have a check for $1,010 within a few hours. The only documentation required was tax returns and rental histories for his units, which were both easy to provide. "The guy I talked to was knowledgeable and respectful. It seemed like he really wanted to write a check and please me since it was my first time in," Harrison said.
by Nin-Hai Tseng - Fortune [/URL]
As an oil and gas industry insider, Matt Simmons speaks with a bold voice and makes even bolder predictions. His 2005 book, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, which argued that Saudi Arabia's oil supplies are way more limited than most people think, raised his profile as an authority on the industry.
For more than 35 years, Simmons has run a Texas-based boutique investment bank, Simmons & Co., which specializes in the energy industry. At times, with his somewhat doom-and -loom-like take on things, there's a hint of conspiracy theorist in his tone. But it's hard to ignore that Simmons is deeply connected and has been pretty much right on in the past: When oil was $58 a barrel the year Twilight was released, Simmons predicted prices would be at or above $100 within a few years. By 2008, when Fortune profiled Simmons, the price of crude had hit $147 a barrel.
As a big believer that wind power is the way of the future, Simmons says the era of easy oil is over and that world oil production will eventually fail to meet expected future demands.These days, Simmons has been weighing in on BP and the worst oil spill in U.S. history, following the explosion of the Deepwater Horizon drilling rig in the Gulf of Mexico. As BP struggles to permanently stop the gush of oil, Simmons has been warning that the scale of the spill is much bigger and that there's a larger leak several miles away.
Simmons also thinks that perhaps the only way to seal the gush of oil is by doing what the Soviet Union did decades ago -- setting off a bomb deep underground so that the fiery blast will melt the surrounding rock and shut off the spill.
Fortune caught up with Simmons this week to hear his thoughts on the Gulf Coast oil spill, the future of BP and what's ahead for offshore drilling.
Experts forecast an active hurricane season this year. We know it could disrupt efforts to stop the spill, but how else do you think storms could impact the Gulf Coast?
We've got to stop the gusher first. Then we have to deal with the other issues. There's a lake at the bottom of the Gulf of Mexico that's over 100 miles wide and at least 400 to 500 feet deep of black oil. It's just staying there. And only the lightest of that is what we're seeing hitting the shores so far. If a hurricane comes and blows this to shore, it could paint the Gulf Coast black. We should have been pumping this oil out onto other tankers weeks ago.
How do you think the U.S. government should handle this disaster?
I think the government should ask BP to leave the United States and turn its operation over to the military. Put the U.S. Navy in charge. Have all the contractors report to the Navy -- the cleanup efforts, the whole nine yards. Because as long as it's in BP's hands, they're going to spin the information as long as they can.
What do you think is in store for the future of BP?
They have about a month before they declare Chapter 11. They're going to run out of cash from lawsuits, cleanup and other expenses. One really smart thing that Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup. But there isn't enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this my guess is that they'll panic and go into Chapter 11.
There's currently a ban on new deepwater oil projects for six months to prevent other disasters. What lies ahead for offshore drilling?
First of all, to the industry's credit, we went 41 years in the United States without an oil spill. In a minor sense, this is what happened to the Challenger. We had so many successful shuttle takeoffs that the space station got kind of casual about this. But this is worse. BP was so certain that there wasn't any risk that three years ago they thought the insurance industry was ripping them off, so they're self-insured on this. How stupid! It was the best thing that ever happened to the insurance industry.
How do you think the Gulf Coast oil spill will change the energy business, if at all?
Profoundly. We're going to have to go back and re-examine all of our regulatory rules and realize the easy stuff is imminent and the rest of the stuff we do is really risky. We have to start questioning whether it's worth the risk, and do we need to get really serious about developing some alternative energy sources? Now I'm working on a big project in mid-coast Maine called the Ocean Energy Institute, and we're hoping that within the next year we can actually create 50 megawatt offshore wind turbines -- one every five miles a part -- and turn that offshore electricity into desalinated sea water and liquid ammonia. It could replace motor gasoline and diesel fuel.
What are the lessons learned from this environmental disaster?
That oil peaked. The easy stuff is over. We have to continue drilling in shallow water, but we probably need to take a deep breath and step back. Until we develop a new generation of equipment that can respond to these accidents, just don't go into the ultra-deep water and deep formations because it's just too risky.
[I skipped the embedded Jon Stewart video....]
[URL="http://news.bbc.co.uk/2/hi/business/10282777.stm"]Why is BP important to the UK economy?
by Anthony Reuben - BBC News [/URL]
by Julianne Pepitone - CNN Money [/URL]
by Steve Gelsi & Alistair Barr - MarketWatch [/URL]
For more than 35 years, Simmons has run a Texas-based boutique investment bank, Simmons & Co., which specializes in the energy industry. At times, with his somewhat doom-and -loom-like take on things, there's a hint of conspiracy theorist in his tone. But it's hard to ignore that Simmons is deeply connected and has been pretty much right on in the past: When oil was $58 a barrel the year Twilight was released, Simmons predicted prices would be at or above $100 within a few years. By 2008, when Fortune profiled Simmons, the price of crude had hit $147 a barrel.
As a big believer that wind power is the way of the future, Simmons says the era of easy oil is over and that world oil production will eventually fail to meet expected future demands.These days, Simmons has been weighing in on BP and the worst oil spill in U.S. history, following the explosion of the Deepwater Horizon drilling rig in the Gulf of Mexico. As BP struggles to permanently stop the gush of oil, Simmons has been warning that the scale of the spill is much bigger and that there's a larger leak several miles away.
Simmons also thinks that perhaps the only way to seal the gush of oil is by doing what the Soviet Union did decades ago -- setting off a bomb deep underground so that the fiery blast will melt the surrounding rock and shut off the spill.
Fortune caught up with Simmons this week to hear his thoughts on the Gulf Coast oil spill, the future of BP and what's ahead for offshore drilling.
Experts forecast an active hurricane season this year. We know it could disrupt efforts to stop the spill, but how else do you think storms could impact the Gulf Coast?
We've got to stop the gusher first. Then we have to deal with the other issues. There's a lake at the bottom of the Gulf of Mexico that's over 100 miles wide and at least 400 to 500 feet deep of black oil. It's just staying there. And only the lightest of that is what we're seeing hitting the shores so far. If a hurricane comes and blows this to shore, it could paint the Gulf Coast black. We should have been pumping this oil out onto other tankers weeks ago.
How do you think the U.S. government should handle this disaster?
I think the government should ask BP to leave the United States and turn its operation over to the military. Put the U.S. Navy in charge. Have all the contractors report to the Navy -- the cleanup efforts, the whole nine yards. Because as long as it's in BP's hands, they're going to spin the information as long as they can.
What do you think is in store for the future of BP?
They have about a month before they declare Chapter 11. They're going to run out of cash from lawsuits, cleanup and other expenses. One really smart thing that Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup. But there isn't enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this my guess is that they'll panic and go into Chapter 11.
There's currently a ban on new deepwater oil projects for six months to prevent other disasters. What lies ahead for offshore drilling?
First of all, to the industry's credit, we went 41 years in the United States without an oil spill. In a minor sense, this is what happened to the Challenger. We had so many successful shuttle takeoffs that the space station got kind of casual about this. But this is worse. BP was so certain that there wasn't any risk that three years ago they thought the insurance industry was ripping them off, so they're self-insured on this. How stupid! It was the best thing that ever happened to the insurance industry.
How do you think the Gulf Coast oil spill will change the energy business, if at all?
Profoundly. We're going to have to go back and re-examine all of our regulatory rules and realize the easy stuff is imminent and the rest of the stuff we do is really risky. We have to start questioning whether it's worth the risk, and do we need to get really serious about developing some alternative energy sources? Now I'm working on a big project in mid-coast Maine called the Ocean Energy Institute, and we're hoping that within the next year we can actually create 50 megawatt offshore wind turbines -- one every five miles a part -- and turn that offshore electricity into desalinated sea water and liquid ammonia. It could replace motor gasoline and diesel fuel.
What are the lessons learned from this environmental disaster?
That oil peaked. The easy stuff is over. We have to continue drilling in shallow water, but we probably need to take a deep breath and step back. Until we develop a new generation of equipment that can respond to these accidents, just don't go into the ultra-deep water and deep formations because it's just too risky.
[I skipped the embedded Jon Stewart video....]
[URL="http://news.bbc.co.uk/2/hi/business/10282777.stm"]Why is BP important to the UK economy?
by Anthony Reuben - BBC News [/URL]
"The government must put down a marker with the US administration that the survival and long-term prosperity of BP is a vital British interest," the former British ambassador to the US, Sir Christopher Meyer, has told the BBC. He urged Prime Minister David Cameron to raise the issue in his scheduled conversation with US President Barack Obama over the weekend.
London Mayor Boris Johnson has expressed concern about the "anti-British rhetoric that seems to be permeating from America". Speaking on BBC Radio 4's Today programme, he said that he "would like to see a bit of cool heads rather than endlessly buck-passing and name-calling". So why is there so much concern about the effect on the British economy?
BP is a huge company, but its shares have almost halved in value since the explosion that set off the spill in the Gulf of Mexico on 20 April. Its stock market value has fallen from about £125bn to about £70bn, which may make other oil companies think about making a takeover bid, although shareholders would be unlikely to accept an offer at the current levels. There is also a chance that BP will end up not paying dividends this year and it is almost certain that the amount BP is having to pay out for the clean-up in the US will eventually affect the dividend.
"When you consider the huge exposure of British pension funds to BP it starts to become a matter of national concern if a great British company is being continually beaten up on the airwaves," Boris Johnson said. UK pension funds do indeed have big holdings of BP shares and the company says that £1 of every £7 paid in dividends to pension funds by FTSE 100 companies last year came from BP. It is estimated that about 18 million people in the UK either own BP shares or pay into a pension fund that holds BP shares.
BP paid £930m in UK tax on its profits in 2009, which was well down on the £1.7bn it had paid in each of the previous three years. The company employs 10,105 people in the UK. The employees paid £490m in income tax and National Insurance on their earnings, while BP paid £110m in employer's National Insurance contributions. If you add together the corporation tax and production tax paid by BP, together with the National Insurance and income tax paid by its employees and the VAT and fuel excise duty paid by its customers, you get £5.8bn, which is about enough to fund the entire budget of the Department for International Development. It is not just the UK economy that is vulnerable to BP's problems. The company employs 22,800 people in the US.
BBC business editor Robert Peston points out that 39% of the company's shares are held in the US, about a third of them by individuals rather than institutions. He adds that those US shareholders might not be happy that every time the US president lays into BP, they find themselves a bit poorer.
[URL="http://money.cnn.com/2010/06/10/news/companies/BP_stock/?postversion=2010061007"]BP: 'Not aware' of reason for stock plungeLondon Mayor Boris Johnson has expressed concern about the "anti-British rhetoric that seems to be permeating from America". Speaking on BBC Radio 4's Today programme, he said that he "would like to see a bit of cool heads rather than endlessly buck-passing and name-calling". So why is there so much concern about the effect on the British economy?
BP is a huge company, but its shares have almost halved in value since the explosion that set off the spill in the Gulf of Mexico on 20 April. Its stock market value has fallen from about £125bn to about £70bn, which may make other oil companies think about making a takeover bid, although shareholders would be unlikely to accept an offer at the current levels. There is also a chance that BP will end up not paying dividends this year and it is almost certain that the amount BP is having to pay out for the clean-up in the US will eventually affect the dividend.
"When you consider the huge exposure of British pension funds to BP it starts to become a matter of national concern if a great British company is being continually beaten up on the airwaves," Boris Johnson said. UK pension funds do indeed have big holdings of BP shares and the company says that £1 of every £7 paid in dividends to pension funds by FTSE 100 companies last year came from BP. It is estimated that about 18 million people in the UK either own BP shares or pay into a pension fund that holds BP shares.
BP paid £930m in UK tax on its profits in 2009, which was well down on the £1.7bn it had paid in each of the previous three years. The company employs 10,105 people in the UK. The employees paid £490m in income tax and National Insurance on their earnings, while BP paid £110m in employer's National Insurance contributions. If you add together the corporation tax and production tax paid by BP, together with the National Insurance and income tax paid by its employees and the VAT and fuel excise duty paid by its customers, you get £5.8bn, which is about enough to fund the entire budget of the Department for International Development. It is not just the UK economy that is vulnerable to BP's problems. The company employs 22,800 people in the US.
BBC business editor Robert Peston points out that 39% of the company's shares are held in the US, about a third of them by individuals rather than institutions. He adds that those US shareholders might not be happy that every time the US president lays into BP, they find themselves a bit poorer.
by Julianne Pepitone - CNN Money [/URL]
BP, in a statement issued Thursday, said it "is not aware of any reason" for its shares' 16% plunge in U.S. trading the day before. On Day 52 of the Gulf oil spill, BP said it "faces this situation as a strong company" and it will "continue to keep the market fully informed of further developments." BP said it is "generating significant cash flow" and has a "strong and valuable" oil reserve, both of which will help it survive the response to the spill. The statement helped push BP's U.S. shares up 11% in premarket trade, but its London stock was off 5.6% in regular-hours trading.
BP's shares tumbled $5.48 to $29.20 Wednesday on volume nine times above normal. The drop came amid some speculation about the company's future -- in a Fortune interview, oil analyst Matt Simmons said BP's "lawsuits, cleanup and other expenses" will force the company into bankruptcy within the month. It's been more than seven weeks since the Deepwater Horizon rig exploded, killing 11 people and causing the oil spill. On April 19, the day before the disaster, BP shares closed at $58.86. Since that time the stock has plunged by 50.4%.
Dividend worries: In addition to the bankruptcy fears, there's concern about BP's quarterly dividend that is slated to be paid out June 21. On Tuesday, Sen. Charles Schumer, D-N.Y., and Sen. Ron Wyden, D-Ore., sent a letter to BP chief executive Tony Hayward saying it was "unfathomable that BP would pay out a dividend ... before the total cost of [the] oil spill cleanup is estimated." Schumer and Wyden cited a Credit Suisse report that said the total cleanup cost could reach $37 billion if oil continues gushing until a relief well is completed in August.
[URL="http://www.marketwatch.com/story/bps-market-value-halves-as-spill-costs-loom-large-2010-06-09"]BP hit by doubts over ability to pay for costs of oil spillBP's shares tumbled $5.48 to $29.20 Wednesday on volume nine times above normal. The drop came amid some speculation about the company's future -- in a Fortune interview, oil analyst Matt Simmons said BP's "lawsuits, cleanup and other expenses" will force the company into bankruptcy within the month. It's been more than seven weeks since the Deepwater Horizon rig exploded, killing 11 people and causing the oil spill. On April 19, the day before the disaster, BP shares closed at $58.86. Since that time the stock has plunged by 50.4%.
Dividend worries: In addition to the bankruptcy fears, there's concern about BP's quarterly dividend that is slated to be paid out June 21. On Tuesday, Sen. Charles Schumer, D-N.Y., and Sen. Ron Wyden, D-Ore., sent a letter to BP chief executive Tony Hayward saying it was "unfathomable that BP would pay out a dividend ... before the total cost of [the] oil spill cleanup is estimated." Schumer and Wyden cited a Credit Suisse report that said the total cleanup cost could reach $37 billion if oil continues gushing until a relief well is completed in August.
by Steve Gelsi & Alistair Barr - MarketWatch [/URL]
BP PLC shares slumped Wednesday, leaving its market value halved in fewer than seven weeks, while the oil giant's bonds were crushed as questions mounted over whether it can afford to clean up the worst environmental disaster in U.S. history. Oil-industry insider Matt Simmons, head of the Texas-based, energy-focused investment bank Simmons & Co., told Fortune magazine Wednesday that BP will run out of cash from lawsuits, cleanup costs and other expenses. "They have about a month before they declare Chapter 11" bankruptcy, Simmons said.
"One really smart thing that [President Barack] Obama did was about three weeks ago, he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup," he added. "But there isn't enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this, my guess is that they'll panic and go into Chapter 11." BP's U.S.-traded shares slumped 16% to close at $29.20 on heavy volume. It's the lowest level for the stock since 1996. The shares traded above $60 before April 22, the day the Deepwater Horizon drilling platform sank off the coast of Louisiana.
BP's 2013 bonds, which carry a 5.25% coupon, slumped on Wednesday, pushing the yield above 8%. BP already has spent more than $1 billion dealing with the spill, and some analysts estimate the disaster could cost up to $40 billion. The company also has said it will pay for all cleanup costs and will cover all "legitimate" claims.
Art Hogan, market strategist for Jefferies & Co., said traders at the firm cited speculation that BP was talking to bankruptcy lawyers as one instigator of the selloff on Wednesday. "It's hard to calculate the ultimate cost of the spill," Hogan commented. "No one even knows how much oil is coming out of the well and there could be more impact from a hurricane. With all the new technology nowadays with remote-controlled robots and video cameras, it's happening in real time in front of everyone all day long. It's a torrential disaster."
BP spokesman John Pack said the company remains on solid financial footing, with 18 billion barrels of proven reserves. "I have no idea where that rumor is coming from," he replied, when asked if BP was talking to bankruptcy lawyers. Pack pointed to a statement made last week by BP's chief executive. "Under the current trading environment, we are generating significant additional cash flow," Hayward said. "In addition, our gearing is currently below the targeted range, and our asset base is strong and valuable, with more than 18 billion barrels of proved reserves and 63 billion barrels of resources. All of this gives us significant flexibility in dealing with the costs of this incident."
Twelve angry jurors
Gregory Evans, a partner at Milbank Tweed Hadley McCloy LLP who has represented large corporations in environmental suits, said BP may have to pay billions of dollars in an environmental lawsuit. "The [liability] exposure is very high for BP, because there appear to be statements that would indicate this was potentially more than negligence," he commented. "As we know from Exxon Valdez and other serious catastrophic mass tort cases for environmental-damage litigation, juries can become very angry with management and express that anger in very high punitive-damages awards."
Still, punitive damages will likely be kept on par with whatever BP pays for compensatory damages, a rule laid down by the U.S. Supreme Court in its decision to reduce damages in the Exxon Valdez case, Evans noted. Those damages were awarded after many years of court battles, and also included payments from insurance companies. Evans said he had no reason to believe that BP would file for bankruptcy in the near future, but even if it did, claims against it would still be paid under a provision called the estimation process. "The estimation process in bankruptcy can be efficient and it can lead to full payment of claims," he added.
Ahead of BP's big slide on Wednesday, analysts at Tudor Pickering Holt indicated that talk had been escalating about a bankruptcy, but concluded that BP is worth more to the government and to investors if it keeps operating. "There is a frenzy for sources/experts/analysts to one-up each other on the assessment of fines and liability and talk about BP as a donut-hole stock (zero)," the Tudor analysts said. "We have a really hard time getting there from a practical perspective, as BP is worth more alive than dead to the U.S. government and all those that want milk from this future cash cow."
"One really smart thing that [President Barack] Obama did was about three weeks ago, he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup," he added. "But there isn't enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this, my guess is that they'll panic and go into Chapter 11." BP's U.S.-traded shares slumped 16% to close at $29.20 on heavy volume. It's the lowest level for the stock since 1996. The shares traded above $60 before April 22, the day the Deepwater Horizon drilling platform sank off the coast of Louisiana.
BP's 2013 bonds, which carry a 5.25% coupon, slumped on Wednesday, pushing the yield above 8%. BP already has spent more than $1 billion dealing with the spill, and some analysts estimate the disaster could cost up to $40 billion. The company also has said it will pay for all cleanup costs and will cover all "legitimate" claims.
Art Hogan, market strategist for Jefferies & Co., said traders at the firm cited speculation that BP was talking to bankruptcy lawyers as one instigator of the selloff on Wednesday. "It's hard to calculate the ultimate cost of the spill," Hogan commented. "No one even knows how much oil is coming out of the well and there could be more impact from a hurricane. With all the new technology nowadays with remote-controlled robots and video cameras, it's happening in real time in front of everyone all day long. It's a torrential disaster."
BP spokesman John Pack said the company remains on solid financial footing, with 18 billion barrels of proven reserves. "I have no idea where that rumor is coming from," he replied, when asked if BP was talking to bankruptcy lawyers. Pack pointed to a statement made last week by BP's chief executive. "Under the current trading environment, we are generating significant additional cash flow," Hayward said. "In addition, our gearing is currently below the targeted range, and our asset base is strong and valuable, with more than 18 billion barrels of proved reserves and 63 billion barrels of resources. All of this gives us significant flexibility in dealing with the costs of this incident."
Twelve angry jurors
Gregory Evans, a partner at Milbank Tweed Hadley McCloy LLP who has represented large corporations in environmental suits, said BP may have to pay billions of dollars in an environmental lawsuit. "The [liability] exposure is very high for BP, because there appear to be statements that would indicate this was potentially more than negligence," he commented. "As we know from Exxon Valdez and other serious catastrophic mass tort cases for environmental-damage litigation, juries can become very angry with management and express that anger in very high punitive-damages awards."
Still, punitive damages will likely be kept on par with whatever BP pays for compensatory damages, a rule laid down by the U.S. Supreme Court in its decision to reduce damages in the Exxon Valdez case, Evans noted. Those damages were awarded after many years of court battles, and also included payments from insurance companies. Evans said he had no reason to believe that BP would file for bankruptcy in the near future, but even if it did, claims against it would still be paid under a provision called the estimation process. "The estimation process in bankruptcy can be efficient and it can lead to full payment of claims," he added.
Ahead of BP's big slide on Wednesday, analysts at Tudor Pickering Holt indicated that talk had been escalating about a bankruptcy, but concluded that BP is worth more to the government and to investors if it keeps operating. "There is a frenzy for sources/experts/analysts to one-up each other on the assessment of fines and liability and talk about BP as a donut-hole stock (zero)," the Tudor analysts said. "We have a really hard time getting there from a practical perspective, as BP is worth more alive than dead to the U.S. government and all those that want milk from this future cash cow."
"Where is the intersection between the world's deep hunger and your deep gladness?"