Thursday, June 10, 2010

British leadership getting on the wrong side of BP's oil spill mess!

Dear Colleagues

Why do the British see criticism of BP the company as being anti-British?

It turns out that the BP Gulf Oil spill is a way bigger problem than it was projected to be at the onset of the disaster. In fact it has one aspect of the global systemic problem in the financial meltdown ... too big to fail. The decline in BP's stock price is turning out to be a big issue in the UK.

It is fairly clear that BP has put stockholders before safety as a core business policy for years, and in so doing has attracted all sorts of British pension funds to invest in it. But not paying attention to safety has a price ... and the price is that when the accident happens, the stock price plummets and stockholders lose some of their investment. What is it that the British don't get?

I am British ... living in New York ... and appalled that the UK leadership is starting to cry over the criticism being made of BP, and the high price that UK stockholders (shareholders) are having to pay because stockmarkets have downed the price of the stock. Pension fund managers are meant to be competent investors ... but in this, as in the financial melt-down, the managers pay themselves a lot without adding very much value to the process of investing.

BP appears to have a safety track record that is substantially worse than the other major oil companies from the US, Canada and Europe ... but very good profit track record, before taking into account the risk inherent in operating with poor safety. The risk is now translating into reality, and the stock is taking a hit ... as it should!

But all of this is ignoring the issue of "making whole" the human and environmental mess that the BP oil spill is causing. I used to be the CFO of a company that engaged in shrimp fishing in some 26 countries around the world, and I know something of the importance of the wetlands to the fishing industry ... and I know something about the damage the oil industry has done to the environment wherever it is able to get away with it. I have also spent many years with humanitarian disaster planning and oversight in developing countries. BP has set the stage for both environmental and humanitarian disaster along the Gulf Coast of the USA. My order of magnitude estimate for the value impact of the BP oil spill disaster on the US Gulf Coast is $4 trillion ... yes trillion.

In other words ... the value loss to the society along the US Gulf Coast is perhaps three orders of magnitude bigger than the sorts of costs and compensation that are being talked about currently in the media. Everyone is talking about the loss of a "way of life" and other phrases with similar meaning ... but the quantification and valuation of this is not getting done. My first estimate is $4 trillion expressed in US dollars.

AP energy writers noted June 9th that:
The stock dropped $5.45, or 16 percent — easily its worst day since the Deepwater Horizon rig exploded seven weeks ago. The company has lost half its market value, a stunning $95 billion, in that time.
This means that the full market value of BP is $190 billion ... rather puny compared to the social impact of their oil spill mess which I suggest is more like $4 trillion!

They also wrote that:
BP, which earned more than $16 billion last year, has already spent more than $1 billion dealing with the disaster. CEO Tony Hayward last week wouldn't estimate the total bill, though he told analysts that minority partners like Anadarko will be expected to pay as well.
I would argue that BP ... the whole company ... should be put in escrow so that society's claims against the company can be met ... paid over time from the healthy flow of profit that the company reports to its stockholders and the dividends that can be remitted to society!

Of course this is not going to happen. Over the years society has been systematically excluded from the economic system ... and the legal system will ensure that the corporate outcome is favorable and the minimum gets paid back to society. This might have been OK in the 19th century ... but it should not be the modus operandi at this point in the 21st century.

As time goes by it appears more and more that from day one of this disaster that BP went into "cover up" mode ... and I have to admit that my sympathy for BP at this point is zero. This disgust goes also to the British leadership that are crying about the impact that BP's behavior is having on pension funds in the UK because of the decline in the stock value of BP. Pension managers who put pensioners at risk by investing in an unsafe company deserve what they are getting ... and if the UK government or others want to bail out the pension fund managers and the pensioners, that is fine ... but the whole of BP's resources should first be applied to making whole all of those who are being impacted by the BP oil spill in the US Gulf that has now reached into four of the US Gulf states.

I cannot for the life of me see much anti British rhetoric in the words spoken about the oil spill ... I only see a tremendous anger at corporate BP, not dissimilar to the anger at Exxon with the Exxon Valdiz spill about 20 years ago. BP has an unimpressive safety record ... on top of a great profit performance.

I have noted a few years ago that BP had a rather modest annual financial report that talked about many billions of dollars that were distributed to stockholders ... and a very big and impressive annual sustainability report, about 10 times as big ... that reported on about $150 million over five years that was being committed to sustainability issues! My reaction was this was "laughable" except that the issue of sustainability and corporate responsibility are important!

BP is not a good corporate citizen ... and should be held to account. As President Obama has noted ... this is not just a matter of legality, but also a matter of morality.

This story is not over by a long shot. I plan on helping all I can to ensure that the valuation of society's disruption is done rigorously.

Peter Burgess
This is the URL for a recent FT article that refers to all of this:,dwp_uuid=4068ae36-5447-11df-b75d-00144feab49a.html

This is the text of the article:
Backlash grows to ‘anti-British rhetoric’
By Jean Eaglesham in London
Published: June 10 2010 23:25 | Last updated: June 10 2010 23:25

Boris Johnson, the Conservative mayor of London, launched an attack on Thursday on what he called the “anti-British rhetoric that seems to be permeating from America”. His statement typified the growing British backlash against the perceived scapegoating of BP by Barack Obama.

The tone of British resentment against the US president’s outspoken criticism of BP and Tony Hayward, the oil company’s chief executive, was set by the headline in Thursday’s Daily Telegraph. “Obama’s boot on the throat of British pensioners”, the rightwing paper declared, as it highlighted the impact of the fall in BP’s share price on the wider London stock market.

Mr Johnson was among a host of politicians taking up the same theme, albeit in a more nuanced manner.

The London mayor called for an end to the “buck passing and name calling”, saying the anti-British rhetoric from the US might damage UK interests. “It starts to become a matter of national concern if a great British company is being continually beaten up on the international airwaves,” Mr Johnson told the BBC.

Andrew Rosindell, a Conservative MP, criticised Mr Obama directly for allowing the oil spill to become an “anti-British” issue. “It’s an inappropriate and not very clever approach by the US president,” he said.

The British government began on Thursday seemingly determined to fend off such criticisms. David Cameron, the prime minister, was accused by some right-of-centre bloggers of “siding with the White House” after he said he understood US concerns over the environmental impact. “We need to be clear that BP needs to do everything it can to deal with the situation and the UK government stands ready to help,” he said on a trip to Afghanistan.

William Hague, Britain’s foreign secretary, sought to ease concerns that the US attacks on “British Petroleum” – which has not been the company’s name since 1998 – might trigger a transatlantic backlash against British industry. ]

“No one has used an anti-British term in anything I have detected,” Mr Hague said. “The key thing here is absolutely dealing with the problem . . . and that is more important than any rhetoric.”

Mr Cameron’s reluctance to criticise the president reflects concern that the issues might sour transatlantic relations, barely a month after the Conservative-Liberal Democrat coalition government was formed, according to Whitehall insiders.

But the government faced criticism over its apparent lack of urgency in responding after it emerged that Mr Cameron had not spoken since his election more than four weeks ago to the president. The prime minister stressed on Thursday that he would be raising the issue with Mr Obama in a phone call this weekend.

Britain has stepped up its ministerial involvement with BP. Charles Hendry, the relatively junior energy minister, had until on Thursday been the only elected representative to deal directly with the company.

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