Macondo Is Still Making Waves

 | Dec 12, 2011 | 2:30 PM EST
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Anyone who imagines the entirety of big oil as one large consolidated effort conspiring together to make the most money possible at all times hasn't been paying attention to the continuing mud fight going on surrounding last year's offshore Macondo disaster. Multibillion-dollar oil companies continue to square off against one another, wielding threats and lawsuits that could jeopardize their survival.

It has become a complicated legal battle of assigning blame, with the wild card of the Department of Justice ultimately having to decide just how far and how draconian it wishes to be in its pursuit for reparations and punishment. But understanding how this scenario might play out starting in February will not only give us some terrific insight into the future of the corporate participants -- BP (BP), Anadarko (APC), Halliburton (HAL) and Transocean (RIG) -- but of the future of offshore drilling.

A parable will help to understand just where we are in the Macondo story. Let's say an owner of vacation houses in a big neighborhood of vacation houses decides to lease one of his bigger homes to a group of college boys. While college boys may not be the most reliable people in the world, there is a history of hundreds of incident-free rentals in the neighborhood to this same group of boys (not to mention other groups of college boys). The house owner, a mister RIG, signs a contract with the boys' leader, a Britty Peters (known to the group as BP), where BP agrees that whatever happens in the house will be his responsibility alone. It is a standard form agreement.

For the Fourth of July, BP and his roommates go out and buy a sizable lot of fireworks from a guy named HAL, and proceed to head up to the roof of the rented house to set off the fireworks. This is not an unknown way to celebrate the Fourth in this neighborhood. Maybe the fireworks are defective, maybe the boys aren't being careful, but this time something goes terribly wrong and the fireworks spew in all directions, not only burning down the house they're renting but landing incendiary devices on neighboring houses and burning some of them down as well.

The fire marshal, local sheriff, real estate agents and lots of neighbors get called to view and assess the aftermath, while the boys, to their credit, immediately take full responsibility for the accident. It is a lucky thing that these boys have some enormous trust funds, because they quickly empty their pockets to make reparations for the damage they've caused. But the story doesn't end there.

After much of the cleanup has been done, there is still a lot of noise from neighbors and neighborhood administrators for more. Most of the administrators want to write more regulations for rentals in the neighborhood and are slowing rentals to a crawl until they're satisfied with the new oversight. But it is the sheriff who feels the most responsibility to not only extract from the boys the money to rebuild the houses but also to extract punitive damages -- it is perhaps not a coincidence that he is running for reelection in the county.

But the boys have now started to balk, speaking up instead of just meekly taking responsibility and opening their wallets. Their ringleader, BP, despite being in charge of the fireworks lighting, has already extorted money from one of his house buddies who was only watching the display, Andy Darko. He's also accused HAL of destroying documents that would prove that the fireworks HAL sold were more dangerous than he let on. And finally, BP's accused the house owner, Mr. RIG, of not educating him sufficiently in the operation of the kitchen and possible dangers of lighting fireworks on the roof, despite what his lease may have said.

What will the sheriff do? The county judges are fairly satisfied that everyone has been adequately compensated, and they are ready to move on to other cases. But so far, the sheriff isn't. And despite the feelings of his judges, the sheriff alone wields the ultimate power on anyone with even a marginal connection to the incident -- the fireworks seller, the house owner, the other boys who were just watching and, of course, Britty Peters.

Guessing what the sheriff has in mind will greatly influence whether we're willing to bet on the futures of the players in this story. If we think that the house owner will ultimately be held without responsibility, then his leasing business is very cheap indeed right now. If we believe that the sheriff will lose his taste for punitive action, then the boys, and Britty himself, have quite a strong future ahead, worthy of sizable support.

And if you've read this far wondering how I think it will turn out, you can probably guess: Britty may still have to work out something more with the sheriff, while the others are more likely to be left alone. But that is far from being a sure outcome.

Because finally, if you don't like wagering on the fickle thoughts of local parochial sheriffs, no one could blame you from staying away from all of these guys right now. That's probably the smartest idea.

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