A $4.5 Billion Fine for Deepwater Horizon Is a Win for BP

Attention seekers of justices, destroyers of evil, lovers of birds: BP is going to pay. Two-and-a-half years after its Deepwater Horizon oil rig exploded 50 miles off the Louisiana coast, pissing 206 million gallons of crude oil into the Gulf of Mexico...

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Nov 15 2012, 4:45pm

Attention seekers of justice, destroyers of evil, lovers of birds: BP is going to pay. Two-and-a-half years after its Deepwater Horizon oil rig exploded 50 miles off the Louisiana coast, pissing 206 million gallons of crude oil into the Gulf of Mexico, the $130 billion company has agreed to pay fines of historic proportions, not to mention the criminal charges it still faces.

When I see the word “fine,” for whatever reason, my mind wanders into the neighborhood of about $5. (It’s what the video store used to charge me every time I returned my video tapes late, which funnily enough happened every time I rented video tapes. Every. Time.) Well, the fine that BP just agreed to is a bit higher. It’s in the neighborhood of $4.5 billion, which is on the low end of pre-decision estimates. If the government had handled the case differently, BP could have paid as much as $21 billion, about one-sixth of the company’s market cap. Meanwhile, as many as four BP employees face arrest and criminal manslaughter charges related to the 11 men killed in the initial explosion.

That’s a lot of cheese, and manslaughter charges are not to be taken lightly. But is it all enough to undo the irreversible environmental damage done to the region or to help local businesses recoup the losses they suffered when their beaches were covered in tar and their seafood filled with goop? Well, that’s complicated. Some would say that you can’t put a number on the cost of the environmental damage, damage that will continue to affect the region for generations to come. It’s not exactly possible to fine a company $infinity for an incident like this—or like anything else for that matter. (Pro tip: If you see an $infinity bill lying on the road, pick it up. Keep it away from BP.)

A lot of legal wrangling led to the $4.5 billion figure, which is a lot lower than the fine could have been. As The New York Times points out, the $4.5 billion figure that BP negotiated with the government did not include fines under the Clean Water Act, which BP will avoid based on the current settlement discussions. The Clean Water Act fines would amount to about $1,100 to $4,300 per barrel of crude oil spilled. Multiply the upper end of that range by the 4.9 million barrels spilled, and you’ll arrive at that $21 billion figure. That’s still not $infinity, but it feels like a stronger dose of justice.

Another way of looking at the situation is to consider what BP was prepared to pay. Two years ago, the company estimated the total cost of the spill to be in the range of $40 billion. This includes all of the clean up efforts, a $20 billion fund to compensate victims of the spill, and whatever fines the government would inevitably levy. BP expected that fine to be in the billions, and in fact, they expected it to be a few billion more than the number making its way around press reports today. Said Robert Peston, business editor for BBC News, “BP is thought to be relieved that it has reached a settlement, because the potential liability was unlimited.” More proof that we should be thinking $infinity, not $4.5 billion!

Money is money, and BP’s got a lot of it. So even if the fine were $21 billion, the company would probably figure out a way to pay it and continue drilling in the Gulf. After all, it managed to remain disgustingly profitably months after the spill, and the company remains profitable today. The criminal charges help take the sting off of BP getting off easy dollar-wise, but surely, the whole thing can’t be pegged on a handful of workers on the rig. There are a number of legal precedents for a corporation to be charged with murder. (They’re people, too!) Can a corporation get the death sentence, too? More importantly, will a multi-billion dollar fine be enough to prevent the next Deepwater Horizon? Unfortunately, the answer is likely not.

Image via Flickr