See the thing is, a couple of times every decade, some major chemical or energy company has a major disaster, and it always turns out that it was a result of cutting corners and negligence. As an executive of one of these companies, you are divorced from the negative consequences of your actions. It's the same "privatize the profits, socialize the losses" mentality the banks had. This creates an endemic failure to properly balance upside with downside - in practical terms the only thing that is going to happen to BP is that they are going to get some bad PR which, as with Exxon and the Valdez, will be gone within a year. The only way to make sure that executives at BP and other similar companies properly appreciate the costs of something like this is to make sure that on a deep, deep level, they understand that if they are behind the wheel in the event of a catastrophic accident, they will feel that catastrophe in their personal life. If they were told beforehand that an accident like this would result in significant personal jail time, do you really think that they would have been so complacent and nonchalant about using blowout preventers which they knew didn't work? We can't socialize the mistakes. That just rewards them for bad behavior. If they want to keep the rewards of chasing the profit, they need to feel the pain when they screw up.
In other words, we throw corporate law out the window and pretend it doesn't exist. We start throwing exec's in jail every time something remotely bad happens, because all companies use cost cutting measures. Should we throw Toyota's execs in jail too for the sudden acceleration issue?
At the point where it was proved that they knew that there was an issue, and they attempted to cover it up, so yes. Toyota just paid the government $16.4 million for their fault. Their net profits were $2.2 billion. If I am the next car company that has something similar happen to it, the inevitable business logic is that they should do exactly what Toyota did. If I was a used car salesman and sold you a car with a part (like brakes) that I knew to be faulty and it was directly responsible for a death, I would be accountable. If I sell 500,000 cars with the same faulty part, I won't be. How does that make sense? I mean, other than the fact that politicians who create the rules know who butters their bread? Whatever is coming out of BP's pocket on this is smaller than what BP saves by cutting corners. What possible reason, then, is there for BP to change behavior. If I was them, I know that I wouldn't. I'd keep on cutting corners. It is more profitable. You know when big tobacco stopped their misinformation campaign about the health risks of smoking? At the point where it became apparent that they would be held accountable before the law for conspiring to lie to their customers. Read about the Radium Girls, and what their employers did to them. They knew that these women would get cancer from the radioactivity, but because of a minuscule potential increase in the quality of their product, they essentially murdered 70 women. And then, when it began to appear that someone might try to hold them accountable, they systematically tried to smear the women by claiming they were whores and had syphilis. If the law outlawed all employee wrongful death suits, I guarantee you that tomorrow someone would be trying the modern equivalent of what was done to the United States Radium workers. That is just the inevitable conclusion of the math. If it is cost effective to murder your employees, and there is no chance of being held accountable for it, you kill them. The ruthless imperatives of the marketplace demand it. If you don't mind the same tragedy repeating ad infinitum, then by all means, continue to give big business executives a free pass on having to be responsible for any downside from their mistakes. If I put a big can of tuna in front of my cat and walk out of the room, whose fault is it when I come back and the tuna can is empty? Mine or the cat's? I don't blame the executives for acting according to their nature. I blame the general public for giving them the temptation that a free pass provides.
The stock has lost about $25 billion for the shareholders because of the spill. The clean up has cost $500 million, and will probably end up costing a few billion. As for BP's profits, yes, they have the cash to pay for it, but everyone seems for forget they spend about $85 billion to make that $6 billion every quarter. Its not like its free money floating in. As for those "best estimates" you are referring to, I'm not sure I buy into those. Estimates done on the leak based on the 21" riser are incorrect, as the leak is actually coming from the 9" drill pipe inside the riser (the professor that calculated based on the supposed flow rate). The fact that the BOP is actually stopping most of the oil, its just not closed completely. This BOP itself gives the best estimate. They know about the maximum flow rate for the well when they drilled it, and by analyzing the pressure that is hitting the BOP, they can estimate how much it is stopping (most of it). This allows them to get a fairly accurate estimate of how much it is NOT stopping. All of that doesn't even take into account the huge amount of gas that is leaking (and they are burning off the drill ship). The gas has extremely limited effects, and may make up half the volume. I would be very shocked if its at the numbers that these "experts" are saying to get their name on CNN. The amount of oil may very well get revised upwards some day, but not near the amounts that these folks are saying.
This may or may not be true. They are purposefully limiting the amount of oil this thing is siphoning at first. They hope to ramp up the operation over the next few days, very, very slowly. We'll see how much it actually collects.
Doing absolutely no research on their financials, I highly doubt the above. Such a statement - at least in the way you're trying to portray it - effectively violates the logic of investment. You don't spend $85 billion to make $6 billion. Maybe in one period you do (though, even still, that's not the best yield), but overally, you expect to make back what you spend and then some, thus yielding a profit/return. I'd guess you are getting confused somewhere in the accounting. They may spend (capex) $85 billion and only profit (net income) $6 billion, but most of that spending is probably coming from operating cash flow, which is then cash that is coming in from their product. I.e. - while capex as a % of net income might be an ok metric to use for comparable purposes, the real metric is capex as a % of EBITDA. You know what, I went ahead and looked. According to yahoo finance, their trailing twelve EBITDA as >$43 billion. Their 2009 full year capex was $22.5 billion. so yeah, don't know exactly what you're arguing or where your facts are coming from?
I guess were I'm coming from is that you have to look at the company as a whole. How much does it cost for this company to operate, and at the end of the year, how much does it make. When it all comes down to it, why do these corporations exist? They exist for money for the shareholders. Those shareholders are earning about 6%-8% margins on the total BP invests every year, including all their overhead. You can slice and dice the accounting any way you want, but BP puts most of their money right back into the economy. You can't just count CAPEX. You have to count everything. The IT systems it uses, the secretary that gets coffee, the travel costs, the engineers, etc. They don't fall into CAPEX. The cost of running a multinational company that employs 90,000 employees and about 250,000 contractors.
Did anyone see 60 Minutes last night with the survivor who had jump from the platform because the lifeboats left him? he works for transocean, and he pretty much puts the blame on BP for rushing when they knew there were problems with the blow out preventer.
I don't "feel bad" for them either. But people have to put things into perspective. This is a multinational global corporation. They make abotu 6%-8% a year. The fact that the numbers get huge just points how much money that BP pumps back into the economy. They keep hundreds of thousands of people working (at good salaries) which helps the economy even more. The fishermen in Louisiana hate the oil spill, but they wouldn't want BP to shut down operations since their cousin, brother in law, friend, and neighbor work for BP or one of the other super major oil companies...or at least a contracting firm that contracts with those companies. The oil spill sucks. Maybe someone was negligent, maybe not. They are working hard to clean it up. They will get killed PR wise. Many people will get fired, whether they were directly involved or not. There will be lots of new government regulation on the industry, perhaps needed. It will cost BP billions, but I think they'll pay it. The media keeps trying to find stories to demonize BP, and everytime they dig up some little thing, it turns into a non-issue a few days later. Its almost getting out of control. Everybody was trained to think this would be like Exxon Valdez, which was a totally different scenario. Maybe it'll be worse, maybe it'll be better. Who knows? And Congress holding hearings NOW? When they haven't even fixed the issue yet? Without investigations completed? Just more political grandstanding for no value. Why aren't these hearings in September, after the well has been capped, after clean up efforts have been working for a couple of months, after the investigation into the cause has been completed? This whole thing is just sickening. Media and politicians politicizing an event that cost 11 lives, and untold damage, before we even know all the facts. Rant over.
Yeah, because the oil spewing out of the bottom of the gulf hasn't yet been the huge catastrophe that the media was hoping to report on. Its size and scale isn't even known yet. Perhaps this does go down as the worst environmental catastrophe known to man, and I'll be wrong. But its equally as likely that this gets capped and cleaned up, and the necessary payments are made to the correct people affected (and a whole lot of people that aren't). You certainly sound angry. I agree. I've had this sick feeling in the pit of my stomach since the rig exploded as well. I am just waiting to see how it all plays out, what the investigations say, how BP responds to covering the cost and damage, and what the damage actually ends up being. One thing we can all hope/pray/agree on. We all should be hoping/praying that the weather continues to be as good as it has been. The hot, mostly non-windy weather has been the #1 clean up assist yet. Every Northern front that can move through is a blessing. And if they can get this thing capped and then have a tropical storm move through, that would be even better (as long as its not a terrible tropical storm).
They could have easily collapsed/sealed the well bore with explosives early on in this crisis (plant them via the remote submarines). IMO, the reason why they didn't is because they seriously think they'll be able to preserve/repair the current well rather than spending the cash to drill another. The fact they are trying to divert the flow to a ship rather then plug the well confirms the theory.
This is totally incorrect for several reasons. 1. This well is lost. They won't/can't save it. The tiny amount of oil they suck up off the floor over the next few weeks is not even worth the effort. There is 0 monetary incentive. It costs more for them to insert the tube and divert to a ship than the oil they capture would produce. Why would they spend $10 million/day to save $375,000 worth of oil? 2. The relief well already being drilled is, in effect, the brand new well and will act as such no matter what they do to this well. So trying to avoid drilling a new well is moot, since they are already drilling a new well (in fact two new wells). 3. This is an exploratory well, not a production well. 4. No matter what they do, they are going to attempt to "top kill" the well anyways in about a week. 5. Explosive at 5,000 feet probably don't work. 6. This is actually the biggest reason: if they tried to explode the well and destroyed the blowout preventer (which IS holding back the majority of oil), you WOULD expand the problem at least 10X. So your theory, that they are trying to save a couple million dollars worth of oil at the expense of billions of dollars of problems, is this issue's "crackpot conspiracy theory". Very similar theory to Obama not being a US citizen, or Bush blowing up the twin towers. The well will never produce enough money to cover the cost it'll take to clean up by letting it leak. Even the most left wing, environmentalist earth muffins don't really believe this theory.
1. Agree, but that doesn't negate the desire to siphon as much as they can out of it. Better to spend 10 million to save a few hundred thousand then spend 10 million and get nothing out of it. 2. Every drop of oil they save helps pay off the cost of the new wells. Seems small, but it all helps. Of course, the spill clean up cost will make most of this moot. 3. Exploratory wells can transition to production wells upon a strike. 4. Speculation, unless you work for them and have inside info. 5. Someone better break the news to the Navy. All snippiness aside it probably just requires a larger device to account for the pressure. 6. Blowout preventer doesn't seem to be doing squat in this case. Their incompetence in handling the matter leaves them open to crackpot theories. Hilariously, the methodologies used so far simply add fuel (ha ha) to the fire.
You've got to be kidding me. If they could have blown this thing up at the beginning, it would save them about $4-5 BILLION in clean up costs. You think they would risk that to save a little bit of oil? You are showing your ignorance at the situation. The total flow rate of this well without anything capping it would be MUCH higher than what is flowing. Let's take the NOAA number of 5,000 barrels a day. This well has a maximum flow rate of 60,000 to 80,000 barrels a day. The blow out preventer closed, just not completely. It is holding back the vast majority of the oil. That's 55,000 to 75,000 barrels of oil that aren't spilling into the water because of the BOP. So it is "doing squat". If you blow it up, the mid sized oil spill becomes as big as the IXTOC 1 from 1979. Yes, exploratory wells CAN transition to production wells, but that was pretty far down the line for this well. The well is ruined. Its gone. BP will never pump productive oil from this well. The new relief well WILL be productive. The relief well they started drilling right after the accident. The new relief well that will be done this summer. That's the new well. This one is a total loss. The estimates of the gulf coast clean up are $2 Billion, all the way up to $12 Billion. If you think they would let this thing flow for a couple million in oil, you are crazy. As for speculation of the top kill, they've already announced to the interior secretary and the President that within 7-10 days they are going to try to plug the well with heavy mud and cap with concrete, using the broken BOP as an injector. With the PR winds blowing the way they are blowing, they are going to do it if they announced they are going to do it. Its on CNN, FoxNews, Yahoo, BBC, POTUS, NPR, Facebook, Twitter, and in the newspaper. You don't need inside info to know their plans, they are announcing each step as they go, then attempting them. Remeber this. Everything BP does on this well has NEVER been done. EVER. Things that work on land, or at 300 feet of water, don't work at 5,000 feet. I find it actually amazing that over the weekend they threaded a 6" tube into a 9" drill pipe (that is sitting insde the 21" riser), at 5,000 feet using nothing but robots and that its working. That is actually quite amazing. They collected 1,000 barrels in one day. They will slowly, slowly ramp that up to hopefully collecting upwards of 85% of the oil. I think a big thing to remember, in the oil industry, this amount of oil is tiny. Itty bitty. Its about 7-10 backyard swimming pools of oil a day. It is simply not worth NOT doing everything they can do to cap the well.
I'm not discounting any of that (moreover, was actually looking at XOM #'s earlier instead of BP, though they are pretty similar), just pointing out that comparing what they spend (be it capex, operational costs, whatever) to what they make (profit) isn't all that enlightening, other than to rightly note that they are making a certain margin on their revenues every period. Right, that's the goal of being in business. I think we all get capitalism. But it's almost apples and oranges to the discussion regarding fault, responsibility, etc. in this accident. "Sure, BP is likely responsible for one of the biggest man made environmental disasters in history, and yes, they make a lot, a ton, a crapload of money every year....but let's not forget they're a huge company that employs a bunch of people" ?? Just doesn't seem like that makes sense. Now, I'd agree, there is probably an end to this and we need to have more information to figure out really who did what and who tried to fix what, etc., etc. However, historically, this usually doesn't turn out all rosy. If I recall, after the Valdez, when all but environmentalists and other super interested parties had mostly forgotten about the spill and gone on with their daily lives, Exxon, the behemoth of a company that they are and the important driver of economic activity in the area that they were, turned to those fishers and others who lost their jobs and said, "Lost your job, well how about we employ you to help clean up the spill" - and in many cases did so by also getting those people to sign waivers eliminating Exxon's liability in case those newly employed cleaners got sick during the process, etc, etc, etc.
I like you. You are a good poster, and I agree with a lot of your points. I think the total impact of this thing will probably be in some grey area in the middle between what the media makes it out to be, and what BP is downplaying it to (although I'm not really sure they are downplaying it as they have launced the largest clean up effort in the history of the world). Just keep on hoping the weather stays like it has been. Calls to let them off the hook on one side are unfounded. BP (and Transocean) should pay for everything, come under oversight, and be fined. Calls to shut them down and stop drilling are also unfounded. BP probably supports directly or indirectly half a million people or more in the Gulf Coast, not to mention oil is very important.
