Baseball Crank
Covering the Front and Back Pages of the Newspaper
April 30, 2010
POLITICS: Spill

Vladimir at RedState, our in-house expert on the energy business, has been following the platform accident in the Gulf since before it was a big national news story, and reminds us of the realities of the business:

We've placed promising areas like the Eastern Gulf of Mexico, the East Coast, offshore California, offshore Alaska and ANWR off limits. This current spill will provide ammunition for the anti development folks. But since our collective thirst for petroleum will be unabated, that will mean more oil and refined products will have to be imported in tankers, with their accompanying risk of spill.

BP looked for oil in the deepwater off Louisiana, partly because (paraphrasing Willie Sutton) that's where the oil is, but also, domestically, it's one of the few places where they had access.

Read the whole thing.

Posted by Baseball Crank at 12:36 PM | Politics 2010 | Comments (26) | TrackBack (0)
Comments

So long as the corporations whose operations cause the destruction spills like this cause fully reimburse the costs of their spills, let 'em drill. The key term there is "fully."

It is only a matter of time, however, for the corporate apolgists on the right to decry the monetary and injunctive penalties imposed on British Petroleum (or as James Carville predicted, Louisiana Petroleum) become clear.

Posted by: Magrooder at May 2, 2010 4:02 AM

Agreed, Magrooder. I recall Crank getting all teary-eyed over the $5 billion judgment against Exxon for the Valdez spill.
Even though they CLEARLY breached agreements and promises made to Natives and Congress.
BTW, Exxon still hasn't paid on the $5 billion judgment.

Posted by: Berto at May 3, 2010 6:16 PM

"BTW, Exxon still hasn't paid on the $5 billion judgment."

Berto, you are absolutely correct. Exxon has not paid a $5 billion judgment. The problem for you is that Exxon does not owe $5 billion. The judgment was reduced considerably following appeals.

In June 2009, the final amount was determined to be $507.5 million, plus $470 million in interest, which Exxon agreed to pay. Plus, they settled out court with various other parties.

http://www.bloomberg.com/apps/news?pid=20601103&sid=ayF8x3bM4KAc

It helps to know what you are talking about before posting.

Posted by: MVH at May 4, 2010 12:58 PM

And, hey, Alaska is all pristine now 'cause the ocean just takes care of everything so why worry about oil spills (or, in this case, oil volcanos)?

Apparently knowing what you are talking about and having an international radio show have nothing to do with each other.

Posted by: jim at May 5, 2010 3:21 PM

Good catch, MVH. Justice sure is different for those with deep pockets.
----
Slightly OT, but did you see that Congress is trying to raise the cap on damages that energy firms will pay when they pollute the environment? The cap stands at $75 million, on things like the cost of the clean-up from BP's spill in the Gulf this month. Congress wants to move the cap to $10 billion.
I don't understand why there is a cap at all. If it costs $80 billion for BP to clean up the mess they made, they should have to pay all $80 billion. If BP can't pay the $80 billion, BP can be liquidated, the shareholders wiped-out and the company will cease to exist. I can't see how any "free marketer" could have a problem with that.

Posted by: Berto at May 6, 2010 1:49 PM

"I don't understand why there is a cap at all. If it costs $80 billion for BP to clean up the mess they made, they should have to pay all $80 billion. If BP can't pay the $80 billion, BP can be liquidated, the shareholders wiped-out and the company will cease to exist."

Think about what you are saying - would anyone bother to engage in offshore drilling if doing so would potentially bankrupt them? Offshore oil drilling, particularly in deep water, is an inherently expensive and risky proposition. No matter how careful you are, there is always the risk of error.

If you want to make them liable for anything and everything under the sun connected to an oil spill, then you are likely to discourage companies from doing it all. Now, if what you really want is a ban on off-shore drilling, just say so. But if you really want that market to exist, you need a cap.

Posted by: MVH at May 11, 2010 12:31 PM

However, with that logic there are only 3 conclusions that are reached if drilling companies are not made to bear the costs of accidents for which they are liable:

1) The spill (and any and all ramifications thereof) are not entirely cleaned up nor entirely paid for. This is the "Sucks For Y'All Living There" method.

2) The government pays for it. This is the "Sucks For Everyone Who Has To Pay Taxes" method.

3) An insurance company(-ies) pays for it. This is the "You Are A Sucker If You Believe This Would Actually Happen" method.

From looking at oil company profits and looking at the costs of a spill (even if your oil tanker sinks in one of the most naturally fragile areas in the world you are getting in for under $10 billion) they could pay for it with less than one quarters worth of earnings. Are you suggesting that oil companies should exist in a realm where they are not responsible for their actions (at least monetarily)? That's not very free-market of you.

It would seem the suggestion of raised caps would promote safety regimens beyond what currently exist today (industry created standards and whatnot) so that the likelihood of a spill (or volcano) was reduced and the ability to deal with it straightaway was improved. Seems like this is a much more (carrot and stick) free-market way of going about things in the context of a society where the negative ramifications of an accident can be widespread and long-lasting. I'm pretty sure there is enough money in oil (unless you are W) that even with reasonable caps (as opposed to artifically low ones) in place the industry would still exist.

Posted by: jim at May 11, 2010 6:43 PM

Jim,

Berto was not arguing about the level of the cap, he was questioning why there needed to be a cap -at all-, and that was what my post was addressing.

No one is saying that oil companies should not be responsible for their actions, but if you make the punishment so punitive that you drive them out of business, then you won't have any offshore drilling at all.

Reasonable minds can differ about how much the cap should be, as long it isn't so high that you price drillers right out of the marketplace.

Posted by: MVH at May 12, 2010 10:00 AM

By the way, with all this news about who is to "blame" for the spill, whether it be BP, Halliburton or Transocean, is making liberals realize how difficult "blame" is to determine with these kind of spills. Most of the evidence is buried under a mile's worth of ocean, and multiple causes are a possibility.

Instead of letting the courts sort this out, Congress is trying to make political hay out of it by having a lot of useless hearings. They are asking oil executives to admit blame, which is stupid for a number of reasons:

1) this accident just happened and no one can determine with any confidence yet as to the precise causes; and

(2) with litigation pending, the oil companies cannot speak with any candor about the accident.

Posted by: MVH at May 12, 2010 10:34 AM

Sorry, that second line should read: "I hope it is making liberals realize..."

Posted by: MVH at May 12, 2010 10:36 AM

It would appear that you work in the oil industry. Perhaps not, maybe you are just a big fan. Your response does not address the problem which is a big, on-going, giant oil spill happening in a sensitive eco-system that, by the way, supports numerous other financially viable acitivities.

You clearly do not want the oil "industry" to bear, potentially, the entire cost of a massive clean-up and the resulting losses of income due to the accident. Fine. Who pays then? Someone certainly has to so who is it going to be? Is there another industry set up that it does not have to bear the costs of the potential downsides of catostrophic failure? (I guess the nuclear industry would be one.)

It seems odd that you are taking apparent enjoyment in this situation. The difficulty in assessing blame is at the very least due in part to the fact that this industry has set itself up to obfuscate, shuck and jive so that in the event of a disaster blame IS hard to assess so that responsibility and therefore cost is hard to pin upon any one (or two) entity(-ies). This set up is no mere accident. It is the willful intent of this industry that has been given the blessings of the US government.

What cost would prevent an oil company such as BP from staying in the oil drilling game? Hmm? I would venture to say it is a number so infathomably high that it would never be approached in reality so your argument that bearing actual costs would doom the oil industry seems disingenuous.

The reality of this is that there is a massive, on-going, out of control oil volcano off the coast of Louisiana. Preventitive measures were sparse at best and any sort of state of the art contingency plan was a myth. There is really no debate about that. Untold numbers of wildlife will perish due to this, sensitive breeding grounds will be sullied for a long, long, long time, waterways will be fouled, the Louisiana fishing industry in most to all of its forms will be impacted (would you eat a Louisiana oyster right now?), tourism will no doubt be impacted and certainly other businesses that I can't even think of will suffer due to this spill that some entity is at least mostly at fault for. Someone has to pay for it. The current cap is laughable. So what's reasonable? What happens once the cap is hit and there's still (potentially) work to be done and people to be compensated? Are the people of LA, et al. just SOL?

I find it odd that your reaction to this major disaster is to find pleasure in the frustration of people (and I bet you they are not just all liberals) to sort out who needs to pay and what that is going to be.

Posted by: jim at May 12, 2010 12:12 PM

Jim,

You are reading much more into my posts than what I've actually written. I don't how you can interpret anything I've written as taking enjoyment out of anything. The oil spill is tragic disaster, that much is obvious.

I repeat - no one is saying the oil companies should not bear a large portion of the costs of clean-up. But there is a big difference between clean-up and containing the spill as opposed to compensating every industry connected to the ocean on the enitre Gulf coast of the US. My point is that the cap should not be so punitive as to force them out of business because otherwise you won't have drilling.

Now if you don't want drilling in the first place, then just say that, but if you do want drilling, don't raise the cap to an absurdly high level because you'll drive companies out of the market. I have not said anything at all what I think the level of the cap should be, only that there is an upper limit somewhere.

My point that there has been a rush to judgment, principally by liberals, is valid. We don't know the exact cause, and Congress is not going to get a lot of candor with lawsuits pending. The hearings are stupid waste of time at this point, and it makes me angry, not happy.

After a thorough investigation or court trial, wouldn't it be embarassing to find out that as opposed to one of the oil companies, one of the major causes of the incident was an unrelated manufacturer of one component of the entire rig, who made a defective part that couldn't possibly be detected until it failed? Wouldn't that change your opinion of the matter?

But hey, why not rush to judgment instead and just blame BP. After all, there is no risk in drilling off-shore right? Forget about the depth, the pressure, the temperature, the exploration, the expensive equipment and huge costs of the undertaking. It's easy money, that seems to be what you are saying. Nothing would discourage these companies from leaving the market. If that's your view, it's simplistic, and you don't have to be oil champion to figure that out.


Posted by: MVH at May 12, 2010 1:22 PM

That was a long answer to avoid the question of who should pay for this. You avoid the issue that the oil companies and associated subsidiaries are intentionally set up in a way to cause confusion in the event of disaster precisely for the purpose of routing blame in a variety of different directions. You avoid the issue that the oil industry itself sets and monitors its own safety and regulatory standards (albeit with the help of the government) and that this disaster was far more preventable and containable had anyone bothered to be at the wheel in any sort of preventative manner. You avoid the point that the oil industry makes far more profit than even this major, major spill would ever cost them (they also, no doubt, have some sort of insurance on this). You avoid the point that if they do not pay for their problem someone else has to (or, presumably, people just get screwed) and who is that going to be.

There is no rush to judgment here. If anything your point is to rush to the view that the oil industry (or whatever company) should not have to pay for everything if the bill is too large. There is no way on earth oil companies are going to stop drilling in the face of larger caps or even no caps. They make shit-tons of money over what any disaster would cost them. It would help if they invested in preventative maintenance (costly, perhaps) that would reduce the risk and exposure on these events. However, since there is a cap that is ludicrously low, why bother?

Clearly there is negligence aplenty here. I think the point being made is that in situations where major catastrophes that are super expensive are a possibility there has to be greater lines of defined responsibility because it is way too easy to obfuscate, point fingers, challenge lawsuits, etc. until everything becomes so muddled and people become so desperate that they settle for the lowest price.

If you can convince me that oil companies are going to willy-nilly start going out of business due to potential clean up cost pressures I'll buy into the rest of your argument. I don't see it at all. It may not be easy money but it is a lot of money. A real lot of money and they aren't going to turn it down. Someone will always be willing to drill for oil, don't you worry.

Posted by: jim at May 12, 2010 3:28 PM

We've got quite a debate going here. For my part, I have no problem with making the companies involved pay the economic costs of the spill, and in appropriate cases government-levied fines if there has been real misconduct.

My issue, as in the Exxon case (and contra Berto, I can't find anything in the archives that I'd written making a big deal about that case - my main look at the Court's punitive damages jurisprudence is here), is with handing out multibillion dollar punitive damage awards, a third of which goes to line the pockets of plaintiffs' lawyers. By definition, punitive damages are in addition to paying for the actual damages caused by the company. What the Supreme Court did in the Exxon case - and whether or not you agree, it's not really 'judicial activism' to do so, given the unusually broad policymaking power the Court has in the area of federal admiralty law - was simply to limit the ratio of allowable punitive to actual damages.

Of course, the most ridiculous thing was the fact that after being smacked with a punitive award for having a drunk as a ship captain, Exxon then got sued by the EEOC for violating the ADA by instituting a policy against hiring drunks as ship captains.

Posted by: Crank at May 12, 2010 3:44 PM

"We've got quite a debate going here. For my part, I have no problem with making the companies involved pay the economic costs of the spill, and in appropriate cases government-levied fines if there has been real misconduct."

Good on you. I am not lawerly enough to claim to know about the use/misuse/abuse of punitive damages and while something beyond "mere" clean-up costs would seem to be in order the thought of lawyers taking stuff like this to the bank in obscene quantities is galling.

Posted by: jim at May 12, 2010 3:59 PM

We've got quite a debate going here. For my part, I have no problem with making the companies involved pay the economic costs of the spill, and in appropriate cases government-levied fines if there has been real misconduct."

I'm not sure how much of a debate it really is. I don't have a problem with raising the cap per se. I think the oil companies should help pay for the clean-up, and I haven't bothered mentioning this because so far *they are* paying for the clean-up and containment.

I question only *how far* the oil companies' responsibilities should extend to what I will call the indirect costs of the oil spill: compensating fishermen, resorts, or any other business that claims it is affected by this spill.

Those indirect costs could be enormous. This isn't like a tanker leak; this is a continuing leak of a huge amount of oil from a well that threatens the entire Gulf coast over a long period of time. I have a feeling at some point, they will look at the cost and decide it's not worth it and leave the market, which is why I say if you want drilling, don't make the cap too high.

My entire argument is based on the cap, not on whether or not I happen to think that off-shore drilling is a good idea. My point was that there is a danger that if you put the cap too high, unwittingly you may be pricing these off-shore drillers out of the business. If that's what you want, it's another debate altogether.

What I won't do, however, is rush to point fingers until a reasonable investigation or a legal determination has been made. Obviously, someone has been negligent, but who and why, and how much is too much liability?

Posted by: MVH at May 12, 2010 5:12 PM

"I question only *how far* the oil companies' responsibilities should extend to what I will call the indirect costs of the oil spill: compensating fishermen, resorts, or any other business that claims it is affected by this spill. Those indirect costs could be enormous."

I would say that if you can't run your business in a way that doesn't lead to such catastrophic events and subsequent payments you probably shouldn't be in that business. Maybe someone else would do a better job (especially in light of tougher regulations, better enforcement, mandated preventative measures and whatnot), would still get oil and the financial spoils thereof and not sully an entire eco-system. Seems like that's just basic capitalism. Again, there is SO MUCH MONEY in the oil business someone(s) is always going to be around to do it. This is not a business that is simply going to disappear.

Also, if you are going sub-contract out work such as concrete structures (and BTW can Halliburton have their fingers in any more piles of poo?), platform maintenance and whatever else goes into it all you should damn well check on what they are doing. I have zero sympathy for BP in this.

Posted by: jim at May 12, 2010 7:03 PM

Jim,

It could very well turn out that oil companies were negligent, and perhaps criminally negligent for what is going on. All I'm saying is you are jumping the gun. What happened, what they knew and what they didn't know has not been established yet. If you are going to blame them no matter what, then we have nothing more to discuss on that point.

Neither you or I know for any certainty what amount of liability would force the oil companies to abandon deep-water drilling. You seem certain that there is enough money in the business, but you have no way of knowing that, and the lawsuits could be endless. I'm simply saying it's a risk, and people should ask themselves whether they want to take that risk before sticking these companies for unlimited liability.

Posted by: MVH at May 13, 2010 7:47 AM

How am I "jumping the gun?" The only thing I have said is that there either should be some sort of realistic cap or no cap as, in the event of a huge oil disaster, someone has to pay the tab. You have no other answer for who should pay so I assume you feel that it is tough crap for those affected if the company runs up against the cap. You also don't seem to care that the way this little shell game is set up is to ensure maximum blame-deflection. Did you see that ridiculous hearing where each company blamed the other? That is not unintentional. Because there is so much money involved the government has allowed these companies to operate in a way that virtually no other company is afforded the opportunity to (again, the only other example I can think of is nuclear power).

I have seen the public records of the ever-increasing, record-level profits that oil companies make and their quarterly revenues out-strip any possible assessment. The liability is certainly not unlimited. That's a ridiculous assertion. There is risk, yes. Again, it's called capatalism and you apparently are not interested in oil companies actually engaging it.

Posted by: jim at May 13, 2010 12:08 PM

I'm more with jim on this one as far as the companies having to bear the costs of real (non-speculative, provable) damage caused by their operations. But this:

"the ever-increasing, record-level profits that oil companies make"

is just wrong. Yes, the companies are huge and thus able to absorb large judgments, but their return on investment is what matters to shareholders (these are massively capital-intensive businesses, given the costs of drilling and of buying permits for stuff that may never get drilled), and to pick an example, if you think ExxonMobil is delivering the kind of shareholder returns that Google is, you're reading their income statements upside down. I believe last I checked, oil was a below-average industry in terms of profitability per dollar invested.

Posted by: Crank at May 13, 2010 12:16 PM

"You have no other answer for who should pay so I assume you feel that it is tough crap for those affected if the company runs up against the cap."

Yes, I am saying that if too high a cap would force oil company's out of off-shore drilling, and presuming you want the companies to engage in that activity, that some private parties may have to eat their losses. It wouldn't be fair necessarily, but it might (emphasize might) be the price having domestic off-shore drilling.

This is a minor point, and hardly an abandonment of capitalism. It's no different than suggesting caps on medical malpractice judgments in order to prevent doctors from fleeing the marketplace.

"You also don't seem to care that the way this little shell game is set up is to ensure maximum blame-deflection."

It's only a shell game if these companies are truly shells. All that can get worked out in court, though I doubt it goes anywhere - piercing the corporate veil claims are tough to win. As I said, if it turns out to be a small manufacturer of a particular component of the rig or valve, then it's hard to blame the oil companies unless they should have known it.

"Did you see that ridiculous hearing where each company blamed the other? That is not unintentional."

Of course it's not unintentional, there are existing lawsuits and a full investigation has not been completed. That's why I think these hearings are premature; investigate but don't ask for admissions of responsibility.

"Because there is so much money involved the government has allowed these companies to operate in a way that virtually no other company is afforded the opportunity to (again, the only other example I can think of is nuclear power)."

More regulation may very well be the answer, but let the investigation as to the causes take place first.

"it's called capatalism and you apparently are not interested in oil companies actually engaging it"

See my comment above re: medical malpractice caps. It's simply a trade-off that a society might have to make to have that market exist in the first place.

Posted by: MVH at May 13, 2010 12:34 PM

"I'm more with jim on this one as far as the companies having to bear the costs of real (non-speculative, provable) damage caused by their operations."

I'm not necessarily against Jim - if having them pay all those judgments won't chase them out of the business, then that's fine with me. I just look at the scope of the oil spill and potential liability, and I wonder if at some point the off-shore drillers decide it's not worth it. Maybe that's the answer, but I wouldn't want to do that unwittingly by a sky-high cap.

Posted by: MVH at May 13, 2010 12:41 PM

MVH,

You come off as an apologist for the oil industry. The idea that companies are going to abandon off-shore drilling is beyond absurd. Perhaps one will, maybe two, maybe three, all to the delight of those that stay in the game. As long as there is oil off-shore and it is legal to do so someone is going to drill for it. Period.

Medical caps are entirely different than this. Not even close to the same.

You should send all the oil industry members a "get well soon" card or something. I'm sure they appreciate your concern for their well being. They bamboozle, obfuscate and lie and you are happy to have them do it or so it appears. The shell game that they are putting on is not entirely about lawsuits (no one expects them to admit blame here) it is a preventative measure that they have set up to ensure that it is unbelievably difficult to assign blame ever or at all.


Crank,

The return on Google is better. The bank account of oil companies is bigger.

Posted by: jim at May 13, 2010 1:07 PM

Jim,
I'm making a very, very narrow argument with regard to the cap, and you are reading too much into it. Depending on what comes out in the end, we may wind up in complete agreement about what should happen. The only real difference between us is that you are assuming facts not yet in evidence, and you are much more certain than I am that oil companies would be willing to tolerate the risk of countless lawsuits in the face of a long-lasting oil spill that could spread anywhere.

I don't have an opinion one way or the other about the oil companies at the moment because all the information isn't out yet. What I won't do is rush to judgment until all the information is out, and I think it's dumb to have them testify before Congress when a full investigation has not taken place.

I'm not in the oil industry by the way, I'm a lawyer.

Posted by: MVH at May 13, 2010 1:52 PM

The Congressional hearing is absurd. Grandstanding on both sides account although I can understand the frustration (amazingly) on the side of some politician on both sides of the aisle and from differing points of view (hell, if you are dead set on off-shore oil drilling as a political stance this incident doesn't really help your case as a politician). I also know that any situation where there is money in the air that there will be frivilous/bunk/abusive/ridiculous lawsuits however that's America and what the hell are you going to do about that?

I think that there is no way that every oil drilling company would get out of the game so there will always be someone to do it. I also hold them in the lowest regard when it comes to avoiding responsibility and setting up guards against responsibility/liability. This is an industry fraught with abuse, political ties and tons of money all of which adds up to screwing people over if they have the chance so I don't trust a word they say or an action they take. This, while perhaps not 100% preventable (as if anything is), was more avoidable and they willfully chose to make it less so. For that they should be held in the highest of consequence. Had they done absolutely everything they could to prevent this I would agree with a reduction in liability as not everthing can be prevented. This is not (and never is with them) the case.

Posted by: jim at May 13, 2010 4:00 PM

"Grandstanding on both sides' account although I can understand the frustration (amazingly) in the case of some politicians on either side of the aisle and coming from differing points of view (hell, if you are dead set on off-shore oil drilling as a political stance this incident doesn't really help your case as a politician)."

That's really what the second sentance should say. Wow, never write a complex sentance after a long wine tasting, huh?

Posted by: jim at May 13, 2010 4:45 PM
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