Study claims Gulf oil spill reimbursements could topple BP

A new report by an environmental group concludes that oil giant BP may not be able to pay all of the damages from the Gulf oil spill.

It found that total assets in the affected area amount to between $330 billion and $1.3 trillion. This represents the remuneration that BP could potentially be saddled with in the unlikely event that the oil spill completely wipes out the area.  

While BP has quarterly profits in the billions, its profits vary greatly depending on the price of oil. The company has seen its value plummet since the spill, and BP’s capitalization level was recently pegged at no more than $160 billion, less than half the Earth Economics report’s low-end calculation for the Delta’s overall worth. 

This suggests that substantial oil damage to the Delta could have a material impact to BP’s bottom line – especially since other Gulf areas affected by the spill are not a part of the report’s asset total.

The study by Earth Economics entitled Gaining Ground used 8 economic methodologies to calculate the total assets of 11 areas in the Mississippi Delta already impacted by the oil spill. The process used was similar to accountants appraising the worth of a company that is up for sale.

Earth Economics is based in Tacoma, Wash., and has provided studies intended to show justification for shifting investment toward environmental restoration. 

A BP spokesman was unaware of the report, but said the company had currently spent $1.43 billion on everything associated with the spill. BP also just announced a $500 million research grant to look at the spill’s impact on the marine and shoreline environment in the Gulf.

“We intend to compensate all businesses and people who experience a direct loss as a result of this spill, whether it’s loss of earnings, whether its damages,” BP’s spokesman told The Hill. “We’ve received 40,000 claims, we’ve paid 20,000 of them already and we expect to spend more.”

The spokesman did not know the total estimate that BP expects to ultimately pay for the spill.

“To date, we have not turned down one claim,” he said.

The Earth Economics report evaluated 11 natural systems of goods and services in arriving at BP’s asset total. They include the oil’s potential impact on the area’s water supply, water flow regulation, hurricane protection, food production, raw materials production, recreational value, carbon sequestration, atmospheric composition regulation, waste treatment, aesthetic value and habitat value.

“The study shows that a company has engaged in an activity that is threatening public and private assets that are larger in value than the value of the company,” David Batker, executive director at Earth Economics and a co-author of the study, told The Hill. “This was calculated just like assets for a company. And the Mississippi Delta produces goods and services with a certain value over the years that can be calculated back to asset value.”

The report states that the Mississippi River Delta ecosystems provide at least $12 billion to $47 billion in benefits to people every year.  If this natural capital were treated as an economic asset, the Delta’s minimum asset value would be between $330 billion and $1.3 trillion.

“This shows the scale of the potential damage,” Batker said, adding, “The assets that BP is threatening are larger than BP by a good measure.”

Calculating the Delta’s asset value began after Hurricane Katrina damaged much of the natural barriers to hurricanes.

“It is reasonable for us to look at natural systems as economic assets,” Batker said. “If we want to be good economists and invest efficiently than we need to look at the full set of assets.”

This sort of calculation was not possible 20 years ago when the oil tanker Exxon Valdez ran aground in Prince William Sound and dumped approximately 250,000 barrels of oil into the water.

Batker cautions BP executives against expecting to reimburse Gulf residents using the calculations that compensated victims of the Exxon spill. He feels his computations paint a more realistic picture of what is lost by natural or man-made disasters.

“These [asset calculations] are all methods that are accepted by academic literature,” he said, adding, “If this was 20 years ago you’d say ‘these shrimpers lost their income for a year, we’re going to reimburse them for that, and we’ll see ya later.’ Now, we can say damage to the wetlands will lose X amount.”

Batker’s group is now looking to calculate the assets of areas beyond the Delta affected by the spill. Spots in Alabama and Florida, as well as the marine life in the Gulf, are being targeted.

“We’re talking about how to conduct that study,” he said, adding, “What you don’t value, you often lose. And that has been the case with the Mississippi Delta. We have lost a huge natural asset.”

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