Making Money on Oil Disasters: Will BP Take Responsibility, or Squeeze this Disaster for Profits?

This article was published by the Center for American Progress.

ExxonMobil will convene its annual shareholders meeting in Dallas this morning as the magnitude of the ongoing BP oil disaster grows. This is a reminder that oil companies need to be held accountable for their actions—both while the oil gushes from the ocean floor and 20 years after the spill. The Exxon Valdez oil accident that slimed Prince William Sound in Alaska in 1989 is a chilling reminder of the need for government oversight and corporate accountability.

Exxon and BP’s broken record

Many would assume that BP—the company responsible for the Gulf Coast disaster—will cover the entire cost of cleanup. But we learned from the Exxon Valdez spill that the reality is very different:

The Exxon Valdez tanker spilled more than 11 million gallons of crude oil into Alaska’s Prince William Sound, which eventually contaminated approximately 1,300 miles of shoreline. The total costs of Exxon Valdez, including both cleanup and also “fines, penalties and claims settlements,” ran as much as $7 billion. Cleanup of the affected region alone cost at least $2.5 billion, and much oil remains.

Yet Exxon made high profits even in the aftermath of the most expensive oil spill in history. They made $3.8 billion profit in 1989 and $5 billion in 1990. And this occurred while Exxon disputed cleanup costs nearly every step of the way.

Exxon fought paying damages and appealed court decisions multiple times, and they have still not paid in full. Years of fighting and court appeals on Exxon’s part finally concluded with a U.S. Supreme Court decision in 2008 that found that Exxon only had to pay $507.5 million of the original 1994 court decree for $5 billion in punitive damages. And as of 2009, Exxon had paid only $383 million of this $507.5 million to those who sued, stalling on the rest and fighting the $500 million in interest owed to fishermen and other small businesses from more than 12 years of litigation.

Twenty years later, some of the original plaintiffs are no longer alive to receive, or continue fighting for, their damages. An estimated 8,000 of the original Exxon Valdez plaintiffs have died since the spill while waiting for their compensation as Exxon fought them in court.

Coastal regions and coastlines of the Prince William Sound are still contaminated. The Exxon Valdez Oil Spill Trustee Council’s 2009 status report finds that as much as 16,000 gallons of oil remains in the sound’s intertidal zones today. A 2001 National Oceanic and Atmospheric Administration study surveyed 96 sites along 8,000 miles of coastline and found that “a total area of approximately 20 acres of shoreline in Prince William Sound is still contaminated with oil. Oil was found at 58 percent of the 91 sites assessed and is estimated to have the linear equivalent of 5.8 km of contaminated shoreline.”

Animals and ecosystems suffered immediately after the spill and still do today. Scientific American reported that, “some 2,000 sea otters, 302 harbor seals and about 250,000 seabirds died in the days immediately following the spill.” The researchers estimate that long term, “shoreline habitats such as mussel beds affected by the spill will take up to 30 years to recover fully.”

Most of the oil cannot be mopped up, In fact, only about 8 percent was ever recovered. Dr. Jeffrey Short of Oceana testified at a hearing on the 20th anniversary of Exxon Valdez that, “Despite heroic efforts involving more than 11,000 people, 2 billion dollars, and aggressive application of the most advanced technology available, only about 8 percent of the oil was ever recovered. This recovery rate is fairly typical rate for a large oil spill. About 20 percent evaporated, 50 percent contaminated beaches, and the rest floated out to the North Pacific Ocean, where it formed tar balls that eventually stranded elsewhere or sank to the seafloor.”

Exxon fought the courts, while BP botched the cleanup

Exxon didn’t fail in its response efforts 20 years ago alone. BP actually joined Exxon in its response efforts—officially BP PLC, the same firm working to stop the gusher in the Gulf of Mexico now.

The Associated Press reports: “BP owned a controlling interest in the Alaska oil industry consortium that was required to write a cleanup plan and respond to the spill two decades ago…investigations that followed the Valdez disaster blamed both Exxon and Alyeska for a response that was bungled on many levels.”

The same lack of preparation persists today, as BP workers and trained local employees and officials scramble to contain the gushing oil.

BP profits while disaster unfolds

BP has made huge profits over the last 10 years. In fact, during the early days of the Gulf of Mexico disaster, BP was making “enough profit in four days to cover the costs of the spill cleanup” so far.

BP made $163 billion in profits from 2001 to 2009 and $5.6 billion in the first quarter of 2010. And The Washington Post found that, “BP said it spent $350 million in the first 20 days of the spill response, about $17.5 million a day. It has paid 295 of the 4,700 claims received, for a total of $3.5 million. By contrast, in the first quarter of the year, the London-based oil giant’s profits averaged $93 million a day.”

Meanwhile, contamination in the gulf continues to worsen. BP CEO Tony Hayward bet there would be a “very, very modest” environmental impact on the region, but the gulf’s fisheries and shorelines will likely follow in the tragic path of the aftermath of the Exxon Valdez oil spill—ruined for decades after. Add thousands of gallons of chemical dispersantsused for cleanup to this mix, along with their unknown but potentially toxic effects, and this only compounds the damage to public health, tourism, and the region’s greater economy.

NOAA has already shut down “nearly 20 percent of the commercial and recreational fisheries in the area because of the spill.” And U.S. Commerce Secretary Gary Locke declared a fishery disaster in the Gulf of Mexico on Monday; the affected area includes Louisiana, Mississippi, and Alabama.

There is only more devastation to come to the communities in the region as their local populations and tourism industries suffer a blow not easily nursed back to health.

Holding BP accountable for the aftermath

BP cannot be let off the hook like Exxon was. No matter what anyone does, most of the gushing oil cannot be recovered; this is why BP must be responsible for regional restoration and cleanup—as well as plugging the hole.

BP needs to be held accountable for stopping the oil gusher and for shouldering the safety, health, restoration, and cleanup costs for years to come. President Obama created anindependent commission to investigate causes and cleanup options for the disaster, and Congress is attempting to raise oil spill liability caps. But more steps need to be taken to hold BP fully accountable for the aftermath of the disaster.

BP should be required to place its 2010 first quarter profit of $5.6 billion in an escrow account to provide compensation to the fishermen, those in the tourist industry, and others whose livelihoods are threatened. These funds should also be used for cleaning up the soon to be blighted shores.

We are reminded as one of the largest environmental disasters in history continues to unfold in the gulf that we are putting our economy, national security, and environment at greater risk every day that the Senate fails to pass comprehensive clean energy and climate legislation. Yet ExxonMobil and BP both bragged that 2009 was a year of safety and environmental improvements for them; BP even claimed that, “2009 was an outstanding year” for their exploration and production efforts.

The BP Gulf Coast disaster reminds us that the offshore oil industry as a whole carries extreme risks that the American people cannot bear. We must act now to dramatically reduce our oil use, and President Obama and leaders in both parties of Congress must provide the leadership necessary to develop a clean energy and climate solution that becomes law this year.

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05/27/2010