The Texaco case must haunt BP. In 1984, Pennzoil made a takeover offer for rival Getty Oil, which Getty accepted. A jealous Texaco induced Getty to breach its contract with Pennzoil. Pennzoil in turn unleashed the lawyers, who submitted a damage estimate of $3-billion-plus in a Texas state court. The jury clobbered Texaco with triple punitive damages, forcing the company into Chapter 11 bankruptcy protection in 1987 (Texaco is now part of Chevron).
In recent years, two other big companies didn't make it through the courts alive. One was Arthur Andersen, Enron's auditor, which was convicted of an obstruction of justice felony in 2002 and promptly vanished from the accounting map. The other was Canadian funeral services giant Loewen Group. It got cremated by compensatory and punitive damages in a Mississippi court, related to an insignificant takeover gone bad, and filed for bankruptcy in 1999.
Many of the analysts and energy experts who are following the BP disaster doubt BP can get off as easily as Exxon did. The Gulf of Mexico is not Prince William Sound, they note. It is one of America's industrial, tourism and ecological heartlands, not a remote wilderness. The livelihoods of millions of workers, from hotel owners to fishermen, could be destroyed by the slick. The cleanup could take years, even decades. The costs will be enormous.
Seemingly everyone who depends on clean Gulf waters for a living has "lawyered up," as they say on the TV crime shows. A New York lawyer, who did not want to be identified, said he "and everyone else I know is involved" with clients who intend to press claims against the British company.
"BP will face decades of litigation and it will take the company decades to recover," said Robert Bryce, a senior fellow at the Manhattan Institute and author of Power Hungry, a book about the myths of green energy. "BP's blowout is the trial lawyers' Full Employment Act."
How much could the cleanup, the litigation and the legal settlements cost? It's impossible to say, because who or what is at fault for the ruptured Macondo well has yet to be determined. While BP is taking overall responsibility for the mess, because it was BP's oil, at least three other big companies were involved: Transocean Inc., the rig operator; Cameron, the maker of the blowout preventer; and Halliburton Co., the well cementer.
The Dutch bank ING estimated that the compensation and cleanup - BP has already spent more than $1-billion on spill-related costs - will come to a mere $5.3-billion, or less than a 10th of the decline in BP's value since April 20. But the ING estimate assumes the new effort to fit a cap on the well works. Credit Suisse estimates the cost at $37-billion.
The true figure could be much higher if the rogue well continues to spew oil for months. Mr. Kilduff, the energy analyst, notes that the U.S. Clean Water Act alone imposes a minimum fine of $1,000 a barrel of oil spilled. Depending on the length of the spill, these fines alone could cost billions of dollars. If the Justice Department finds criminal behaviour, the class-action lawyers, equipped with their contingency fees, could have a field day.
Some lawyers and oil executives think BP will simply be able to tough it out in the court, dragging out the day of reckoning while generating vast amounts of cash and profits from its global operations.
BP is Britain's biggest company and the world's leading oil producer, measured by volume. In the first quarter, it generated $7.7-billion of cash from its operations. After capital investments of $3.8-billion, it was left with $3.9-billion of free cash flow. "The legal battle will be long and slow," said Jim Buckee, the former CEO of Talisman Energy Inc., which began life as BP Canada. "They generate buckets of cash and will be able to stall [and] dispute for a long time."