Threat to Capitalism Warning Notice: Regulatory Overkill Again

No sooner had I begun to relax than I read of another manifest danger.  No, it's not ill-conceived regulations of the financial sector as one concerned bank CEO calls them.

It's regulatory overkill for offshore drilling.

In today's FT the Lex column thundered:

Regulatory overkill after BP's drilling accident has understandably soured the mood.

I've boldfaced two words from the quote.  A "drilling accident".  Sounds benign.  A company dedicated to "best practice" and with a highly environmentally friendly logo is drilling and for some unexplained reason there's an accident.  Probably not their fault at all.  Hard to see what all the fuss is about.

On the front page of the FT in an article hysterically titled "BP Cited for Safety Lapses on North Sea", I did learn that the newspaper had filed a request under the UK's Freedom of Information Act and learned that:

"All but one of BP's five North Sea installations inspected in 2009 were cited for failure to comply with emergency regulations on oil spills, raising questions about the company's ability to manage a disaster in the area."

Now some of you cynics out there might use this information to criticize the good folks at BP.  You might say the instead of describing the Gulf of Mexico as an accident, this bit of information suggests criminal negligence.

I for one look at this last bit of news with a less condemning eye.

1. If there's an accident here, it's likely relating to the one out of the five wells in the North Sea.  BP has a pretty consistent record.  Besides preparation for disasters is a waste of shareholder funds, because in well managed operations disasters never occur.
2. BP's disaster management abilities (or lack thereof) have been pretty well demonstrated and documented.  There's really no need to raised questions now to which we already have the answer.  The information obtained by the FT is therefore not explosive (at least in a news worthy sense).  

It's high time that pointy-headed bureaucrats in Washington and in London get off the back of the financial and oil industries.

They've demonstrated a remarkable rhetorical capacity for imaginary self-regulation.  It's time to end regulatory overkill.  Next thing you know there could be crackpot schemes for food or mining safety!  All this could wind up killing our very way of life.  That is, of course, if you're able to continue living after an economic and environmental collapse, assuming you didn't die from food poisoning first.

BP - The Right Place Part II

Still thinking of that investment in BP?

Here's an interesting article from the Financial Times evidencing a curious concern with the firm's health.  If everything is "fine and dandy", why worry about asset sales, joint ventures, and the like? 

The request underlines how closely the Obama administration is watching BP’s every move and its interest in ensuring the company remains a going concern in the wake of the oil rig explosion that killed 11 people and continues to spew thousands of barrels of oil into the Gulf of Mexico every day.

"Going concern" indeed.  

Perhaps as in "Going, going, gone.  Sold American".

BP and the GCC: In the Right Place? Yes. The Right Time? No.

You've probably seen press reports that GCC states - among other "wise" investors - are considering riding to BP's rescue with capital.

At The National Frank Kane muses today whether "the Gulf is in the right place to back up BP".   One cannot question his argument that the Gulf is in the "right place".  Long historical relationships.  Some  historically stormy.  Paging Kermit Roosevelt.   Strong familiarity with the industry.  Lots of money in the pocket.

But before ADIA or another SWF steps forth with a capital infusion a la CitiGroup, it's probably appropriate to ask whether this is the right time.

Promises of a 300% return presume the continued existence of BP.  And unlike Citi BP is not too big to fail. 

Instead the really smart money should be looking to pick off prime assets from a sale now.  Or waiting to join the vultures later when it's time to strip the carcass.  

The total cost related to the Gulf spill (that's Gulf of Mexico) is far from clear.   The relatively simple  part (if one can use the word "simple") is the cost of capping the well and the "clean-up".  More importantly will be the claims for damages.   Much more complex.  There's a strong likelihood that the "tab" will be much more than the US$35 billion that Citi estimated.  Profound and lasting (perhaps permanent) damages.  From the residual oil and the impact of the over usage of dispersant chemicals.  Destruction of wetlands.  Loss of livelihoods - fishing, tourism.  The spectre of a chemical tsunami churned up by a hurricane making large swathes of the coast unlivable. Not just in the Gulf but as well along the East Coast of the United States.   Damages the extent of which may not be apparent for decades. 

In an environment where it is highly unlikely that US citizens or Congress will allow BP to skate away with a slap on the wrist.  Even if that slap is a rather smarting US$35 billion.

What's the way out?

Confronted with mounting and perhaps indeterminable liabilities, BP is likely to perform corporate seppuku - though it's hard to see any honour being redeemed in the act.  A filing for bankruptcy ( a "Pre-Pack") that will neatly inter the Gulf Coast liabilities along with BP's remains.    

 
Not a particularly smart move to become a shareholder now.  All that one is likely to get is  a front row seat when Last Post is played and the BP flag taken down.  A rather expensive ticket to a rather dismal event.