NCPA - National Center for Policy Analysis


June 16, 2010

A new report by an environmental group concludes that oil giant BP may not be able to pay all of the damages from the Gulf oil spill.  

The study by Earth Economics entitled "Gaining Ground," used eight economic methodologies to calculate the total assets of 11 areas in the Mississippi Delta already impacted by the oil spill.  The process used was similar to accountants appraising the worth of a company that is up for sale.  

The Earth Economics report evaluated 11 natural systems of goods and services in arriving at BP's asset total.  They include the oil's potential impact on the area's water supply, water flow regulation, hurricane protection, food production, raw materials production, recreational value, carbon sequestration, atmospheric composition regulation, waste treatment, aesthetic value and habitat value: 

  • The report states that the Mississippi River Delta ecosystems provide at least $12 billion to $47 billion in benefits to people every year.
  • If this natural capital were treated as an economic asset, the Delta's minimum asset value would be between $330 billion and $1.3 trillion.
  • This represents the remuneration that BP could potentially be saddled with in the unlikely event that the oil spill completely wipes out the area. 

While BP has quarterly profits in the billions, its profits vary greatly depending on the price of oil.  The company has seen its value plummet since the spill, and BP's capitalization level was recently pegged at no more than $160 billion, less than half the Earth Economics report's low-end calculation for the Delta's overall worth.  

This suggests that substantial oil damage to the Delta could have a material impact to BP's bottom line -- especially since other Gulf areas affected by the spill are not a part of the report's asset total. 

Source: Jay Heflin, "Study claims Gulf oil spill reimbursements could topple BP," The Hill, June 12, 2010. 

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