June 15 (Bloomberg) -- BP Plc may need to offend “or even alienate” U.S. government officials pressuring the company to spend more money on restitution for the oil spill in the Gulf of Mexico, said former Shell Oil Co. President John Hofmeister.
BP’s cost to clean up the spill, the worst in U.S. history, may escalate enough to threaten the London-based oil company’s future, Hofmeister, who now runs the advocacy group Citizens for Affordable Energy, said today at a Bloomberg Link Boards & Risk Conference in Washington.
“The current political movement by the U.S. government is basically an unlimited liability,” said Hofmeister, who ran the U.S. operations of Royal Dutch Shell Plc, Europe’s largest oil company by market value, from early 2005 through mid-2008.
BP has spent about $1.6 billion to stop the leak, clean up the oil, and compensate local businesses and residents since the April 20 explosion of the Deepwater Horizon oil rig. U.S. officials are increasing pressure on the company to accelerate payments, replace lost wages of idled oil rig workers, and suspend dividend payments to shareholders.
“At some point the entity will have to defend itself,” Hofmeister said. “At what point are they willing to offend or even alienate certain government officials in the interest of the enterprise because the alternative would basically be to give up the enterprise?”
Protecting the Dividend
The damaged well in the deep waters off the Louisiana coast was gushing 20,000 to 40,000 barrels of oil a day prior to June 3, according to an estimate from scientists tasked by the government. The spill has closed as much as 37 percent of federal waters in the Gulf of Mexico to fishing, cut offshore drilling in the U.S. by half and polluted at least 140 miles (225 kilometers) of shoreline from Louisiana to Florida.
BP, which accounts for 12 percent of the dividends paid into U.K. pension funds, is likely to get some help from the British government in defending itself from the U.S., Hofmeister said. British officials have already complained that the U.S. is being too tough on BP, criticizing calls from members of Congress for the company to suspend dividend payments.
“The government has an incredible interest in protecting its enterprise, even if part of it might have to be hived off at some point,” Hofmeister said.
BP, which reported profit of about $16.6 billion for 2009, paid $10 billion to shareholders last year. Investors are fleeing, pushing BP’s shares in London and American depositary receipts down more than 45 percent since the explosion, wiping out at least $90 billion in market value.
Change in Attitude
Hofmeister said a “micro-examination” of the oil spill is needed, partly to see if the faults are systemic to the company. In the end, BP may eventually have to sell its U.S. assets, Hofmeister said.
The spill will at least prompt BP’s board and directors of other companies to re-evaluate their preparedness for disasters, said Constellation Energy Group Inc. Chief Executive Officer Mayo Shattuck, who spoke on the same panel with Hofmeister.
Directors are going to ask the “what-if questions,” Shattuck said. “Now it’s: If it does happen, what are you going to do about it?”
The nuclear industry had its wake-up call, Shattuck said, in the partial meltdown of the Three Mile Island reactor in Pennsylvania in 1979.
BP’s board needs to be aware of constituencies beyond the company’s shareholders, Shattuck said.
“The board often has to step in and make sure the management team understands and appreciates the balance across all constituencies,” he said.
