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Updated on June 15, 2010

Barrels of Money for the Cleanup

British Petroleum, being 'British' should love royalties, or at least understand them. The roylaties in question are not kings or queens but dollars, the dollars BP owes the United States for all the oil escaping from its Deepwater Horizon disaster. Any oil is subject to full royalty payments as soon as it leaves the drill bore. So, if an exploration company screws up and lets oil loose the full royalty payments are due on the oil that leaves the drill bore, not just oil that is safely captured for refining.

When the Depwater Horizon blow out first happened, BP's estimate of oil loss was 1,000 barrels per day. In oil language, a barrel equals 42 gallons. So, we were expected to believe that an uncontrolled flow of oil at the blow out would be producing 42,000 gallons of oil per day. This was never credible, but went largely unchallenged for a few days. Within days of BP claiming the 1000 barrels per dayU.S. Government sources said that they estimated five times that amount - 5,000 barrels per day or well over 200,000 gallons.

The fact is that no one knows how much oil is escaping into the Gulf although ever more accurate and alarmingly increasing estimates are adding millions of gallons to the daily outrage. Obvioulsy any metering equipment at the well head is gone, consumed in the blast that blew out the well. There is sonic technology that can accurately measure the flow rates at oil wells and BP has installed it on several of their wells, but not Deepwater Horizon. Regardless of how much oil is escaping BP owes the United States full royalties. This is a significant fact for two reasons. First, while officials on all sides of this ugly mess posture and proclaim about the damage being done to the Gulf, its environment and the lives of the thousands of people who depend on it for work and while the White House mutters about how to pay for the cleanup and the damage claims, BP's bill is soaring by the minute. But, no one has mentioned this fountain of cash that should be flowing into federal coffers. The second reason is that we now see how utterly inept MMS has been and remains when it comes to figuring out how much the nation should be paid for its precious natural resources.

BP has announced the supension of its quarterly dividend, nearly $2 billion. Its stockholders had the nerve to object to this measure. What would they say if Exxon-Mobil poured tens of millions of gallons of crude oil into the Thames with no apparent way to stop the flow? Would they be so generous with an American company as they apparently expect us to be with them? BP still has mountains of money. It drills more natural gas and oil in the U.S. than any other single company. Their cash flow is Olympic. No company that posts a regular annual dividend well over $7 billion is credible when it cries poor.

Was BP intentionally misleading the world with its silly original 'estimate' of the oil flowing into the Gulf of Mexico? If so why? Sooner or later accurate tallies of the oil washed up on Gulf beaches and flowing into its tidal marshes would be developed. Simple calculations would show how much oil made up various slicks that are clearly visible. BP could not escape a true reckoning indefinitely. My guess is that BP is very aware that royalties are due on all the oil they have loosed and that they would prefer to avoid paying as many tens or hundreds of millions of doallrs as they can. If BP can delay an accurate accounting they might be able to argue that the wide dsipersal of the oil makes such an accounting inmpossble. Worst of all, and more to the point, BP has had decades of experience with Minerals Management Service so they have no reason to believe that the U.S. government is able or willing to collect its fair payments.

It might help matters generally if someone in our government would tell us how much BP owes to date for the oil they have allowed to belch into the Gulf of Mexico. It might also help if someone in our government would declare a freeze on new permits to BP for other drilling projects. Even better someone with authority should instruct our Department of Justice to seek an attatchemnt on all BP operations currently producing oil and gas in the United States.

British Petroleum should not be allowed to repatriate one penny until it agrees publicly and permanently to do whatever has to be done and pay whatever has to be paid to fix the Gulf of Mexico and its people. I do not care if the president is angry. He has yet to place blame where it belongs. I do care that he does something, something effective, something immediate. Let's start with a clear statement of how much BP owes per hour or per day for the oil their well is leaking.

The money BP will not pay out for this quarter's dividend, if deposited into an escrow account for clean up and damges, might go a long way toward establishing BP's credibility as an ethical business organization. As for there any hope at all?


Copyright 2010 By Peter A. Kenney


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