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Raising Liability Costs Could Help BP, GOP Warns

5 years ago
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Among the many efforts in Congress to rein in large oil companies in the wake of the BP oil spill in the Gulf of Mexico is a proposal by several Democrats to raise or even eliminate the cap on liability costs for oil companies drilling off the coast of the United States.

As the law is now written, companies like BP must pay to clean up any oil they spill, but their liability costs are capped at $75 million if they are not found guilty of gross negligence or willful misconduct. In recent weeks, Senate Democrats have introduced bills to exponentially raise oil companies' liability to $10 billion or even eliminate the caps altogether, thus forcing the companies to pay unlimited sums to anyone adversely affected by the spill, including individuals, businesses and local governments.

But Republicans have blocked those efforts three times, and each time Democrats have accused the GOP senators of protecting big oil companies.

"This is really about whose side do you stand on?" Sen. Robert Menendez (D-N.J.) charged after a recent round of Republican objections to his bill. " Do you stand up with the taxpayers or with multibillion-dollar oil companies?"

But Sen. Lisa Murkowski (R-Alaska), the top Republican on the Senate Energy Committee, has argued the opposite -- that raising the liability caps to $10 billion or more will actually give BP and other large oil companies a greater monopoly in the industry. (She has, however, introduced a bill to waive BP's liability protection for the Gulf spill, and would be open to some increase in overall caps.)

"This would give all of America's offshore oil resources to the biggest of big oil," Murkowski said on the Senate floor. "It would be impossible or near impossible for any energy company that is smaller than the 'super-majors,' smaller than the national oil companies, to operate in the Outer Continental Shelf."

She added that if independent companies cannot afford to insure themselves to explore for oil, they won't be able to get financing to operate. The result would leave leaving the drilling to the Chinese, Russian and Saudi nationalized gas companies, Exxon and of course BP, the largest operator in American waters. Out of luck would be smaller companies like Anadarko Petroleum, Marathon Energy Company, Devon Energy, or Conoco Phillips, which collectively produce one-third of oil and two-thirds of natural gas from the OCS.

A letter to Menendez from John Lloyd, the chief executive of London-based Lloyd Partners insurance company, supports Murkowski's argument, saying that oil companies will not only face higher premiums, in some cases they could not get insurance to operate with unlimited liability. Only multibillion-dollar companies like BP, ones that can afford to pay out of pocket for billions of dollars in damages, will remain in the market.

But whether small companies stay in the offshore drilling business is immaterial to some Democrats, including Sen. Frank Lautenberg (D-N.J.), who said that companies that can't afford to pay damages after a spill should not be operating in the first place.

"If a smaller entity was doing this and actually created the spill in the Gulf, under the view that (Republican senators) have expressed several times, they should have more limited liability," Lautenberg said. "It really means that when you hit oil and it all goes well, the oil company keeps the profit. But when it spills, the taxpayer pays. We think that's fundamentally wrong."

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