Has it struck anyone as odd? For 18 months now, governments have been saving companies from themselves. Banks messed up in about as big a way as you could imagine, and got rescued. Car makers – especially the Detroit Three (GM, Ford and Chrysler) – went through money faster than a Toyota without brakes, while their bosses flew around in their private jets for chin-wags with Barack Obama, and have had money pumped into them either directly or indirectly via the cash for clunkers scheme.

And then you get one of the world’s most profitable companies, that makes money even faster than GM could blow it, and it seems the authorities, or at least one authority in particular, are hell bent on bringing the company to its knees.

According to the Guardian, the final bill to BP for the oil spillage could be $34bn, more than double its annual profits. US senators are talking about the company putting $20bn into escrow, meaning ring fencing it to pay for economic damages, but say this should not be seen as a cap on legal damages. The Guardian reckons with cases pending, the final bill could be $34bn.

Back in 1989, following the Exxon Valdez oil tanker disaster, Exxon Mobil was initially fined $5bn, equivalent to its annual profits at the time. But after a long run of appeals and counter appeals, the final fine was half a billion dollars. But other costs meant the overall bill to the company was around $3.8bn (around 70 per cent of annual profits). Since it is generally agreed that the Gulf of Mexico spillage is much worse, it is therefore not inconceivable that the final bill will be even greater than the Guardian’s estimate. US senators now want the company to pay the wage bill of workers for rival companies who lose work as a result of the Gulf of Mexico drilling ban.

The snag is, if BP goes bust, or is banned from all projects in the US, as some predict, the company will have no way of paying its obligations. Of course, once money is in escrow it is safe, but the rest of the bill?

Now is the time for BP to respond. Forget about dividends. To pay them would be seen as an insult in the US. But it is time that BP said: Look, if you are going to demand all this money you need BP to be as profitable as ever. The quid per quo is this: we will pay our dues, providing you let us get on with being one of the world’s largest companies. (If you like, and to paraphrase a rather tactless remark from the company’s boss: We will pay our way, providing we can we have our corporate life back.)

Mind you, it is difficult to separate the truth from fiction on BP. On one hand we are being told the company took shortcuts. And once again the estimate of how much oil is spilling out into the ocean has been upped. It is quite embarrassing how BP’s own estimates have proven to be so woefully inaccurate. But on the other hand, on Capitol Hill, the House Energy Committee has slated Exxon Mobil Corp., ConocoPhillips, Chevron Corp. and Royal Dutch Shell Plc, saying their plans to deal with an oil leak are virtually the same as those prepared at BP.

‘There but for the grace of God, go I,’ or in other words, but for a stroke of luck that could have been me. We remain cynical of the view that BP has been singularly poor at preparing its safety procedures, and are of the opinion that the disaster could have happened to any of the oil companies. Whether the problem is that the procedures laid down by the authorities are not strict enough, or whether BP was not adhering to them, remains to be seen. We still hold to the view, one that is denied within the oil industry, that what we are really seeing is the inevitable consequence of demand for oil escalating, while supply remains stretched. There is plenty of black gold out there all right, but the environmental costs associated with exploiting it are growing.

Returning to the theme of how banks have been bailed out, yet BP forced to its knees, there is another point of view. It could be argued that the true cost of oil is external to the process of exploiting it. In short, there are costs associated with consuming oil that are not borne by BP. So perhaps if the oil companies really were to pay the true cost of exploiting oil, their profits may be a good deal lower.

So, rather than saying the US government is dragging a good company to the point of ruin, it might be more accurate to say that market failure to adequately allow for the true cost of fossil fuels may have created the impression of wealth creation, when the reality was quite different. In fact, it could be argued that the huge profits made by the oil companies are just as illusionary as the profits made by the banks during the good times, and which were then cancelled out when their bad practice caught up with them.

Today’s articles:
BP – the bill rises and rises
RICS points to rising supply
Japan – central bank finds the plan that UK needs
Greece and Spain see more angst
World Cup to boost economy