Oil prices have been falling over the past year, and this has excited Americans that have been shackled to high gas prices since the 2008 economic downturn. Consumers have been noticing a plunge in gas prices over the last 100 days, and this is due to a variety of economic factors. However, BP is feeling the brunt of lower oil prices, and these low oil prices could spell doom for the corporation because it is already floundering financially after a scandal.
In the coming months, oil prices will play into the downturning saga of corporate oil giant BP because industry analysts do not see oil prices increasing in the near future. BP found out in mid-January that it could be paying for damages for a 2010 oil spill to the tune of $4,300 per barrel spilled, instead of the proposed $3,000. This news could not come at a worse time, since the company is struggling to make a profit due to falling oil prices, and a Wall Street Journal article states that this makes BP a “takeover target.”
The Bloomberg Report states that the $13.7 billion in fines related to cleanup could be seen as a victory for BP, since the previous fine estimate was $18 billion. In coverage about the cleanup ruling, the Guardian U.K. states that, on April 20, 2010, 11 people were killed and millions of barrels of oil were dumped into the Gulf of Mexico. This was during a time when oil prices in the US were soaring — and BP benefited from that oil price surge.
Now, over four years later, the ruling on the Deepwater Horizon oil rig explosion has officially declared that this was “one of the worst environmental disasters in U.S. history.” The Wall Street Journal announced in the days after the Federal Court in New Orleans reported that BP must pay at least $13.7 billion in fines and that this, along with plummeting oil prices, signaled the end of BP as a corporation. Long gone were the lucky breaks like the oil prices surge that boosted BP’s cash flow in 2010 after the Deepwater Horizon explosion.
Now that oil prices are sliding, BP does not have enough money to pay the fines. The Wall Street Journal reports that the $13.7 billion is $10 billion more than the company has set aside and that “[t]he company is carrying $53.6 billion in debt, $21 billion more than at the time of the spill.”
“Some analysts have been speculating that a slimmed-down BP could become a takeover target once the Deepwater Horizon litigation concludes.”
While consumers are enjoying the lower oil prices that results in lower prices at the gas pumps, lower oil prices means companies like BP have had to lay off workers. A BBC report in December 2014 states that the company had been downsizing since the oil spill in 2010, but it was “speeding up the process due to falling oil prices.” This also affects the 20,000 people employed by BP in Texas, but crude oil prices have fallen by 40 percent over 2014, and that has cut into BP’s oil price profits.
The Wall Street Journal also points out that “BP had $30.7 billion in cash by the end of September,” and that “BP also argues it should get credit for leading the ‘largest environmental response operation in the nation’s history,’ according to court pleadings. The company has incurred $43 billion of spill-related costs, including criminal and civil settlements and $14 billion for the Gulf cleanup.”
The Financial Times concludes that BP could be in trouble as a company after the fines are collected. They state that the rating agency Moody’s gave a negative outlook for BP that “could cut the company’s rating.”
Does this mean that the federal government is out to destroy BP at a time when oil prices are lowest? The Guardian U.K. article about the event quotes Dan Jacobs, a business professor and a former environmental-focused Justice Department lawyer that said the U.S. government was being so harsh with BP because, “[a] major underlying rationale for imposing a substantial fine in a case like this is its deterrent value.” Jacobs goes on to say the following.
“I think you’ll see a record-setting penalty… This is the worst environmental disaster in U.S. history, at least according to the President.”
[All images are from the referenced links.]