Business

07.29.13

Three Years After Gulf Oil Spill, Money Continues to Flow to Region

Three years after BP’s disastrous oil spill in the Gulf of Mexico was capped, funds continue to flood the region. Is the legal fallout providing a form of continuous stimulus?

It’s been three years since the BP gulf oil spill, one of the most high-profile and environmentally damaging man-made disasters in the new millennium. The oil and gas may have stopped flowing into the Gulf of Mexico, the money sure hasn’t. Along with fending off a price-fixing investigation from the European Commission and a U.S. lawsuit, also based on collusion, BP is contending with a rising tide of claims from businesses seeking damages from the 2010 spill.

Though the explosion and fires at another offshore rig in the gulf last Tuesday may seem comparable to the Deepwater Horizon accident, experts say this incident pales in comparison with the April 2010 incident that caused the largest oil spill in American history.

The economics of disasters have long been debated. Keynesians have noted that events that stimulate spending, like natural disasters and wars, can be economically beneficial even if they exact costs up front. In his 1936 opus, The General Theory of Employment, Interest, and Money, John Maynard Keynes argued that even “wasteful” spending could be enriching: “Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better.”

Keynes was mainly arguing for government countercyclical spending, a departure from the classical approach of letting the market sort itself out. But the BP oil spill has clearly served as a deep spring of continual stimulus, thanks to a generous claim settlement, plaintiff-friendly courts, and the shrewdness of local trial layers and businesses, who have received payments even when suffering minimal or no damage. Thus far, BP has paid $14 billion in cleanup costs and $11 billion in claims. And the claims keep on coming.

Businesses farther and farther from the Gulf Coast are seeking damages, encouraged by trial lawyers who see opportunity in the potential for business to be paid even for revenue declines unrelated to the oil spill. In a recent cover story, Bloomberg Businessweek quoted Tampa attorney Kevin McLean’s solicitation letter in which he informed potential clients, “The craziest thing about the settlement is that you can be compensated for losses that are UNRELATED to the spill.” The 260 clients represented by McLean’s firm reportedly have claims that range from $20,000 to $4 million, and he has made no secret of the fact that some claims have nothing to do with the spill.

According to The Economist, instances abound of Louisiana businesses getting multimillion-dollar payouts from the BP settlement fund for damages to business even when those businesses did better in the year of the spill than in prior years. BP tried to stem these claims by arguing to a federal appeals judge that the claims administrator has been lax in enforcing definitions of revenue and expenses, allowing businesses to take liberties with settlement claims rather than strictly being compensated for “loss of income, earnings, or profits suffered.” The company has had little luck thus far.

In a recent cover story, Bloomberg Businessweek quoted Tampa attorney Kevin McLean’s solicitation letter in which he informed potential clients, “The craziest thing about the settlement is that you can be compensated for losses that are UNRELATED to the spill.”

In some cases, the aftermath of disasters can cripple the very infrastructure that would enable recovery. The 2011 tsunami that hit Japan was not only the most expensive disaster in human history (it caused $360 billion in damages), but it also took a toll on supply networks. In Louisiana, a major commercial seafood producer, such concerns extend to the state’s fisheries. Gov. Bobby Jindal has continued to exert pressure on BP to fund coastal restoration efforts, stating that “there are still an estimated 200 miles of shoreline in our state that remain oiled, and Louisiana has 100 percent of the remaining heavily and moderately oiled shorelines. Three years later the disaster continues in Louisiana.”

But despite the stern rejoinder to BP regarding the Louisiana coastline, Jindal has expressed his disapproval of a suit filed against energy companies by the Southeast Louisiana Flood Protection Authority-East that is seeking several billion dollars in damages to repair the coastal wetlands. The Republican governor criticized the suit as beyond the authority of the levee board and is calling for it to be dropped.

The 2012 Restore Act directs 80 percent of BP’s civil fines paid under the Clean Water Act to the coffers of the gulf states, but states will likely have leeway to spend that money on initiatives other than coastal restoration; one city in Mississippi is reportedly building a baseball stadium. Such efforts will do little for the health of the wetlands, but could provide a minor pick-me-up for local economies.

BP isn’t the only company paying for its 2010 mistakes in the gulf. The Justice Department announced last Thursday that Halliburton, whose fracking business is currently the subject of an antitrust probe, is pleading guilty to one count of destroying evidence. The charge stems from an internal review of the faulty Macondo well that was deleted from records. Halliburton will pay $200,000 in fines, the statutory maximum (as one Huffington Post columnist observed, Halliburton earns that sum every 23 seconds).The company has also made a voluntary $55 million contribution to the National Fish and Wildlife Foundation.

Resolving the lingering issues from Deepwater Horizon won’t be so easy for BP, though. The company has taken out ads in The New York Times and The Wall Street Journal criticizing the claims process and the “outrageous windfalls” it has yielded for claimants. But the strategy hasn’t earned the company any sympathy in the courts. U.S. district court Judge Carl Barbier last month rejected BP’s request to freeze claims, arguing that there was no evidence of widespread claims manipulation.

The post-oil-spill gusher of stimulus to the gulf is likely to continue.