BP’s single biggest error in the catastrophe which has engulfed it and the coast of the Gulf of Mexico was Tony Hayward’s open-ended undertaking to take “full” responsibility for the oil spill and the clean-up process.

Given that BP hired the US (now Swiss registered) company Transocean to drill the well, that the now sunken rig (Deep Water Horizon) belonged to Transocean, that the final cementing in place was carried out by Haliburton, a well-known Texas company of Iraq contracts fame, formerly led by Dick Cheney, President Bush’s Vice President, that BP actually own only 65% of the well itself, the other 35% being owned by an American company Anadarko (25%) and a Japanese company Mitsui (10%), this undertaking was egregious folly of the highest order.  If Hayward didn’t consult BP’s US lawyers before opening his mouth about the problem, then this naivety alone should be enough to have him lose his job.  If he did consult them and they didn’t advise him against such an undertaking, then they should be fired.

This undertaking is effectively the same as someone renting a house, which then blows up because of a gas leak, and who then agrees to pay for all the damage caused to his neighbours by this explosion.  Any insurance company would insist that there be no admission of liability until the causes of the explosion were clearly established since only then would they expect to negotiate the settlement of any claims with other possible contributors to the accident.

That this incredible open-ended undertaking has bought no favours from the US authorities, is plain to see in the near- halving of BP’s share price.  Rather, as with any bully, President Obama’s appetite has grown with the feeding.  Obama told the American people on Tuesday (15 June) that the purpose of the meeting (16 June 2010) at the White House was for him to tell BP to put $20 Billion into an escrow account which is equal to twice the annual dividend which BP pays to its shareholders – the owners and three hundred times BP’s maximum liability under US law ($75 Million) for the consequence of any oil leak offshore of the USA.  These monies are to be disbursed to claimants (of which there will likely be millions) by an “independent” third party.  For good measure Obama believes he can order BP to stop paying dividends until the escrow account has built up to the amount he has decided.

Deplorably, BP has complied with these bullying demands.  BP has agreed to establish a $20 Billion escrow fund and to cancel the three unpaid dividend payments due this year (21 June, 21 September, 21 December).

None of this menacing talk, almost certainly illegal under World Trade Organisation (WTO) rules, is aimed at Transocean, Anadarko and Haliburton (or Mitsui who would tell Obama where to get off).  Indeed Transocean, which has recently re-registered itself in the Canton of Zug in Switzerland, is all set to pay a dividend of $1 Billion to its shareholders, while Anadarko is paying its shareholders $45 Million next Wednesday.  BP’s chances of recovering anything from Transocean, Anadarko or Haliburton (which is provided with almost total cover by the US authorities) are basically nil.  [Indeed there is a prospect that Anadarko will sue BP for loss of revenue from the Macondo well.]  Mitsui might help.

What should BP do Now?

First BP should recognise that it is actually engaged in a war for its own survival with the Obama administration, going far beyond stemming the flow of oil and contributing to the cleanup.  Wars can never be won by propitiation of the enemy, but only by using every card in the pack, every lever you can use without compunction.

Second BP’s supporters in the City should be encouraged to draw a public comparison between the British government’s virtual silence about the destruction of a prime British asset and the way the French government would have reacted if Elf or Total, rather than BP, had been threatened by Obama.  Exxon-Mobil, Petrochina, maybe Total will be only too happy to pick up BP’s huge assets and all its expertise at a knock-down price, a result which the London Times, in its traditional appeasement mode, seems only too happy to envisage (Editorial June 17 2010).  Soft words of vague reassurance are not enough: the Cameron government has actually to fight for BP’s survival using all the leverage it has – Afghanistan in particular.  British troops may not be able to save Afghanistan, but they could be instrumental in saving BP – an actual British asset worth £3 Billion per annum in dividends to British pension funds and maybe £5 Billion in taxes for the Treasury.

Third BP should detach all of its non-US mainland assets from BP America, which is entirely staffed by Americans, who were responsible for hiring Transocean in the first place.  BP should tell Obama that only these assets will be the source of the (escrow account) cleanup and reimbursement claims.

[In case Obama makes a great storm about this, he should be reminded of the 15,000-20,000 deaths and the many thousands of injuries and polluted acres due to Union Carbide’s Bhopal catastrophe in 1984.  Inadequate compensation ( £780 for a death; £315 for the injured) was essentially capped by the resources of Union Carbide India in which Union Carbide had a 51% interest.  Union Carbide’s chairman at the time, Warren Anderson, enjoys a comfortable retirement in the Hamptons on Long Island New York, apparently unharassed by either the Indian or US authorities despite there being an Indian extradition warrant describing him as an”absconder” from justice.]

Fourth the BP board should gather a bit of bottle together and declare that it will pursue Haliburton, Anadarko and Transocean for their fair share of the escrow fund and fines to come, through the US courts if necessary.

Fifth in order to stem the huge gush of US hypocrisy about BP’s alleged “recklessness” and culture of “cutting corners”, BP should remind Americans that all BP’s mainland US plants and most of the staff (as distinct from the Alaska North Slope) were inherited from the two American companies it took over – Amoco (1998) and Sohio (1968).  The Texas oil refinery which exploded in 2005 with the deaths of 14 people was an elderly Amoco refinery.  This would not necessarily have been operating at the Dupont/ICI standard, or indeed BP’s own former plants at Grangemouth in Scotland.

BP needs also to remind Americans that the drilling rig Ocean Saratoga owned by Diamond Corporation, contracted by Taylor Energy Corporation (all American) has been leaking oil since April 30^th.  Saratoga is about 40 miles from Deep Water Horizon, and according to Blue Water News (Gulf of Mexico based publication) has created a slick 10 miles long, visible from space.

Furthermore, Obama and his administration were, until the spill began in April, actively encouraging oil companies to drill deep to access oil beds in the Gulf in order to reduce the USA’s dependence on imported oil from the Middle East.  Some hundreds of drilling licences have been issued or were under active consideration up to the date of the spill.

Sixth without making excuses BP should tell US audiences that drilling and manoeuvring on the sea bed at 150 atmospheres (2,000 psi) and then drilling a further depth of 2 miles, is an enormous, innovative undertaking, not far short of a moon shot in the sense of the hostile environment in which the drilling operations and attempted recovery are being made.

Does anyone believe that the recovery of Apollo 13 after one of its oxygen tanks exploded on April 24 1970 would have been helped by the then President (Nixon) telling the American people that “he would put his boot” on NASA’s throat, and he would “make them pay for every last dime the recovery operation cost”, while calling for the chief of NASA to be sacked as the recovery operation was going on.

Fortunately for the astronauts and the American people, the much maligned President Nixon did none of these hysterical things, recognising that there was a huge engineering problem to be solved and that NASA did not deliberately inflict the disaster on itself, anymore than BP has done.

If this terrible cloud hanging over BP’s future has a silver lining for the British people, it is that the infatuation of the British media with President Obama is over (except of course at the BBC where the reverential tones which their principal announcer on News at Ten, Huw Edwards, adopts whenever the name of Obama comes up, are all too reminiscent of the BBC’s studied neutrality during the Falklands War).

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