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BP in a catch 22

Consider the dilemma facing the CEO of BP and the CEOs of other major deep-sea drilling companies in light of the disaster in the Gulf of Mexico as they contemplate possible securities and other liability litigation. Tony Hayward, BP’s CEO, needs to protect BP’s reputation in order to maintain loyalty for its consumer products like its gas station chain as well as maintain morale among its employees.  It does this by, among other things, taking a conciliatory note about the responsibility of BP to pay all types of reimbursements to the public arising out of the accident.  Meanwhile, securities litigation professional plaintiff firms are taking notes that will no doubt conclude that Hayward is not best protecting shareholders by making these concessions to pay all reasonable costs.

Part of the public relations campaign is writing articles like the one on the Opinion page of the Wall Street Journal last Friday.  In it, Hayward concedes that BP needs “to be better prepared for a subsea disaster”.  Having conceded a lack of preparation, he not only potentially admits to liability for this disaster, he raises the question of why BP is not shutting down other deep sea drilling operations pending completion of its preparations for new disasters.

BP’s nightmare is not theirs alone.  In addition to the obvious problems of the other participants in this disaster, there are many other large oil and related parties who continue to operate other deep sea drilling programs with a similar lack of emergency preparedness.  President Obama has shut down deep-sea drilling in the U.S., however drilling continues in other parts of the world. Why then, in these other parts of the world, have they not  shut down operations pending better preparation for disaster (perhaps they should pre-drill the relief wells that will now take until August for BP to complete)?  Bad enough being BP, just wait to see what happens if there is another deep sea well failure anytime soon.

Insurers get this already.  Rates for deep see wells for liability insurance are up by 50% and this even though insurer losses are only felt from parties other than BP who self-insured their liability exposures.

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