Monday, May 24, 2010

U.S. Pushing BP (NYSE:BP) by Raising Liability Cap for Oil Spill

The U.S. governments' attempt to force BP (NYSE:BP) pay more than they legally have to for Gulf of Mexico oil spill will have the usual unintended consequences, having the potential to make it too costly for smaller oil companies to drill for offshore oil. It would also generate a slew of lawsuits related to existing agreements in place.

In relationship to economic losses connected to oil spills, politicians have introduced legislation which would raise the cap to $10 billion as the maximum payout required.

The existing $75 million cap on damages is also being considered to be raised, with Obama supporting it.

What will raise legal problems and challenges is the legislation is targeting leases that are already in place, and not only new leases, something that could cause all type of problems for companies drilling, as the lease agreements were based on existing conditions and costs, and the increase in insurance premiums could devastate the companies if this is what ends up happening.

There is precedence in a prior Supreme Court ruling which favored existing leases, which says the laws in place at the time the lease was agreed to are considered to be still part of the contract, and would rule in the situation.

More than likely the attempt to change the terms of the lease would be rejected, as it would breach the leases in place.

The idea of applying a cap to BP alone could also be unconstitutional in reference to due process and basic fairness, so is also unlikely to be implemented.

With BP saying they're more than willing to pay for legitimate economic claims, it's questionable as to why the politicians are going forward with this, as they could do it at another time once they see how BP responds practically to their promise. This of course only applies to this specific case, and no other.

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