Can BP Afford to Pay for the Oil Spill?

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It’s been nearly two months since the oil spill in the Gulf Coast began (57 days to be exact) and this week may prove to be the toughest yet for BP (Stock Quote: BP). Last night, President Obama interrupted prime time TV to excoriate the company from his seat in the Oval Office. Today, Obama met with BP’s executives, hopefully to grill them some more in private and Tony Hayward, the CEO of the company, will be in the hot seat tomorrow in front of Congress.

In the weeks since the oil spill first started, the debate has shifted from the question of who is to blame for it (BP, Transocean, Halliburton) to whether and how BP will pay to fix the mess.

During his speech last night, President Obama stated that his administration will push for BP to “set aside whatever resources are required to compensate the workers and business owners who have been harmed as a result of his company's recklessness." And today, as part of that effort, BP has reportedly agreed to pay for a $20 billion fund that will go toward any claims from Gulf residents whose livelihoods have been affected by the oil spill.

It’s a ton of money, but $20 billion is only a drop in the bucket compared to what BP could be forced to pay. While it certainly seems like a safe political strategy to force BP to bankroll the cleanup effort, it does raise the issue of whether this company can actually afford to do so. Sure, it’s a massive oil company that earns about $30 billion in profits each year, but even a big company has its limits.

According to CNN Money, shares of BP’s stocks have dropped by 48% since the day the oil spill began, meaning the company has lost nearly $90 billion in market value. Then there’s the fact that BP is spending big bucks every day to deal with this crisis. So far, BP has spent $1.43 billion to clean up the leak and pay off damage claims, and now, The New York Times reports that BP could be held accountable for fines totaling $258 million a day, if they are found guilty of gross negligence. If that’s not bad enough, one independent report has found that the total value of “goods and services” coming from the Gulf region is somewhere between $12 and $47 billion a year. Should BP be held accountable for all or most of that?

Obviously most Americans could care less about whether BP remains a profitable company, and some undoubtedly believe that BP deserves to go out of business completely, but is it possible that all of these fines could force BP into bankruptcy and thereby make them unable to pay back consumers who have been negatively impacted by the oil spill? Yes, it’s possible, but as one expert told Bloomberg, “It’s highly unlikely the claims would be so large that BP would pay any valid claims less than in full.”

Do you think that BP should be held accountable for all damages related to the oil spill? Should they share this burden with some of the other companies involved like Transocean?

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