Diary

NY Times: "Can the U.S. Punish BP's Shareholders?"

The NY Times has an interesting piece put on its website this very hour. It deserves a follow-up post to my earlier “I am a BP shareholder.”

First, the NY Times story on the British reaction (or, do they still want to be our ally?):

Push for BP to Halt Dividends Hits Resistance in Britain
By JULIA WERDIGIER
Published: June 10, 2010
LONDON — British investors in BP are growing increasingly frustrated with the White House’s involvement and comments about the company’s efforts to clean up the oil spill in the Gulf of Mexico, and partly blame politicians for the sharp drop in the share price.

BP’s shares, which are widely held by pension funds here, dropped 7 percent in London on Thursday because of concerns about the costs for the oil cleanup. The shares have fallen more than 40 percent since the fatal explosion at the Deepwater Horizon drilling rig in April, wiping more than £50 billion, or $73 billion, from the company’s market value.
(…)
Investors in Britain were particularly furious about the suggestions that BP should not pay a dividend until it cleaned up the oil spill. BP’s dividend payment accounted for about £1 of every £8 handed out by British companies last year, according to FairPensions, a London-based charity.
(…)
Earlier, a spokeswoman for Mr. Cameron said the prime minister would be discussing the issue with President Obama in a weekend telephone call.

Here’s the “Room for Debate” NY Times article with six differing expert opinions:

June 10, 2010, 6:53 pm
Can the U.S. Punish BP’s Shareholders?
By THE EDITORS
The United States Justice Department said on Wednesday that it was considering legal action to block British Petroleum from paying dividends to make sure the company covers all costs related to the oil spill in the Gulf of Mexico. Interior Secretary Ken Salazar has said BP would be asked to pay energy companies for losses if they had to lay off workers because of the moratorium on deepwater drilling.

BP has to pay energy costs because of Obama’s moratorium on deepwater drilling? What does a spill in the Gulf of Mexico have to do with oil off the coast of California or in Alaska? Suppose Chile or Peru or Brazil suspend deepwater drilling? Should BP pay? RIdiculous, extreme example: If someone slips in the shower, should Obama issue a moratorium on Americans from taking showers? Is this one shower manufacturer liable for all dirty Americans?

BP, whose shares dropped 7 percent in London on Thursday, said it would decide next month whether keep a quarterly dividend of 14 cents a share for the second quarter, a payout of about $2.6 billion. Needless to say, investors in Britain were furious because BP dividends accounted for some 12 percent of all dividends handed out by British companies last year.

Here’s one opinion:

Crossing the Line
Jeffrey A. Miron is a senior lecturer and the director of undergraduate studies at Harvard University and a senior fellow at the Cato Institute. He blogs at jeffreymiron.com and is the author of “Libertarianism, from A to Z.”

In an unprecedented move, the Obama administration is calling on BP to abandon the protection of the Oil Pollution Act of 1990, which limits BP’s liability under federal law to $75 million in damages, plus cleanup costs.

As horrible as the damage from the spill might be, abandoning the rule of law, which is what the administration’s proposals imply, is worse. BP has not been convicted of anything yet, nor is the magnitude of damages known, so BP should be free to operate as a legal company in the meantime. This might mean that, when judgments occur in future years, BP will be bankrupt and unable to pay. That is unfortunate, but it is what the rule of law requires.

BP has every right to avail itself of the protections of the 1990 Act. The company may choose to pay more than its legal obligation out of concern for public relations, but that should be BP’s choice, not the result of strong-arming by politicians.

And BP did not cause workers to be idled at other deep-water drilling sites; the administration caused that by imposing its moratorium. The lessons learned from the BP spill may ultimately suggest that future drilling should be curtailed or that oil companies should pay more up front as a “down payment” against possible damages. But that is relevant to future decisions, not existing arrangements.

Here’s another opinion:

No Legal Grounds
J.W. Verret is an assistant professor at George Mason Law School, where he teaches corporate and securities law. He is also a senior scholar with the Mercatus Center, the director of the Corporate Federalism Initiative and a contributor to Truth on the Market.

There are no legal grounds for the Department of Justice to seek an injunction against British Petroleum to prohibit its scheduled dividend. The law offers options to stop dividend payments in the case of bankruptcy, but there is no indication that BP is facing bankruptcy.

Despite actor Alec Baldwin’s hopes to the contrary, BP has a sufficient cushion to pay for its expected clean-up costs even if they are greater than expected.
(…)
Even if BP’s dividend decision is a bad idea, it is not the Justice Department’s call to make. The timing of this development, when the BP disaster has brought the president’s poll numbers to an all-time low, indicates that the independence of the Justice Department may be at risk.

The Founding Fathers were mindful of politically motivated prosecutions by the English Crown. That concern was the primary impetus for the constitutional protections in the Bill of Rights. The decision under consideration by the Justice Department undermines its integrity and threatens the rule of law.

Again, I am a shareholder and I can lose everything. The stock is way down and if I had to sell now, I’d be a big loser.

The issues are, can or should the government run BP, a private corporation? Are drilling moratoriums needed? Is the government, as shown through its pathetic Mineral Management Service, even capable of regulating this industry?