Monday, June 14, 2010

The USA vs. the UK - Deja Vu All Over Again

      The calamity in the Gulf of Mexico is putting strains on the relationship between the USA and the UK. I can see both sides of the problem, but I think we have the better argument.
      The British object to President Obama’s calling the bad guy in the Gulf “British Petroleum” instead of “BP.” (In 1998 British Petroleum merged with Amoco and became BP Amoco. In 2001 it formally renamed itself BP, and adopted the tag line “Beyond Petroleum”). They claim it is making the whole British Empire look bad.
      I understand the British reluctance to having aspersions cast upon BP; stock price is affected by rumors or bad reputations of any company. Since the explosion of April 20th, BP’s stock price has dropped 50%, or about $90 billion dollars.
      As Britain’s largest corporation, BP stock is held by almost every pension plan in the country; BP pays about 1/7 of all dividends paid in the UK. About 40% of its shares are held in Britain, and 39% are in the hands of US shareholders.
      The danger to the company is three-fold – the threat of bankruptcy, the suspension of dividends, and the rapidly falling stock value as investors dump their shares.
      So it is not surprising that Brits are taking offense at some of the remarks that have been made by our politicians, and President Obama in particular.
      Last week the President stated that one of the reasons he visited the Gulf was to talk to people on the scene in order to determine “whose ass to kick.” He also said that if it were up to him he would have fired Tony Hayward, BP’s CEO. Although his anger is understandable in view of the tragedy, that was rather strong language for a head of state.
      But to be honest, Tony has also made some very insensitive remarks. In April he said, ““What the hell did we do to deserve this?" Well, since 1965 BP has had several accidents and shady deals, ranging from the collapse of the Sea Gem oil rig, which killed 13 workmen, to propane and oil price manipulation, to leaking pipelines in Alaska. And in just the last three years the company has had 760 safety violations.
      There have been others, but probably Tony’s biggest gaffe so far was "the Gulf of Mexico is a very big ocean. The amount of volume of oil and dispersant we are putting into it is tiny in relation to the total water volume." That’s true Tony, but it’s pretty big compared to the shoreline.
      BP has promised to pay all damages, but I would expect that the company will try to use its own definition of “damages” in settlement of claims.
      The President is trying to decide what to do in regard to BP’s guaranteeing to pay damages. One option under consideration is asking the company not to pay dividends until the claims are settled. Whether he has the power to enforce such action is constitutionally suspect. He is also considering requiring BP to put funds in escrow in order to cover damages. That is a good possibility. The company is considering suspending dividend payments, but putting funds to cover them into escrow. That’s my guess as to what will happen.
      Will BP file bankruptcy? The company is in a strong cash position and also has the capability of borrowing substantially more. I think bankruptcy is unlikely.
      As I said, I understand the Brit’s position, but its not their nest that’s being fouled.
      Some natives of Melanesia believed that certain stones had magical powers, which corresponded in their nature to the shape of the stone. For example, if a piece of water-worn coral were to be found that looked somewhat like a bread-fruit, the man who found it would lay it at the root of one of his bread-fruit trees in order to make it bear well. If the tree did indeed produce as expected, the owner would, for a fee, allow less endowed stones of other men to be laid near his stone in order that they might pick up some of the magic which resides in it. The power was not in the stone itself, but in the spirit which resided in the stone.
      Man Takes Control – The Spirit Runs Through It.

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