DALLAS — Louisiana Treasurer John N. Kennedy has urged Gov. Bobby Jindal to develop a financial contingency plan in case BP Corporation North America Inc. declares bankruptcy due to the enormous costs associated with its oil spill in the Gulf of Mexico.
In a letter delivered to the governor Friday morning, Kennedy said BP may not have the financial resources needed to fully compensate the five Gulf Coast states and their citizens for damages and expenses due to the April 20 oil well blowout.
Kennedy said he sent the letter to Jindal because current plans to remedy the effects of the oil leak and compensate businesses and local and state governments are based on the expectation that BP will pay for those efforts.
He said BP could see a Chapter 11 bankruptcy filing as a way to protect it from claimants, including the federal government, Louisiana and the four other Gulf Coast states, and individuals and businesses damaged by the spill.
“I’m not suggesting to you that BP will or is about to file for bankruptcy,” Kennedy’s letter said. “I am suggesting to you it is a possibility, particularly as part of a merger through which BP would attempt to cordon off its liabilities for the spill.”
Kennedy said in an interview Friday that he is concerned a BP bankruptcy would reduce the likelihood of Louisiana being reimbursed for its efforts to protect the coastline and reduce the impact of the spill on the economy of its coastal parishes, or counties.
If BP declares bankruptcy, Kennedy said, Louisiana might be required to return any payments from the oil company made during the six months prior to the filing.
“We need to get a plan in place,” Kennedy said. “If BP seeks bankruptcy protection, we need to have a plan of how the state will pay for this if BP’s assets are frozen by the bankruptcy court.”
Kennedy said he is not satisfied by assurances from BP that the oil giant will pay for the cleanup and other damages.
“I’m not saying BP has not been truthful about that,” he said. “But they haven’t been truthful about the size of the leak, they have not been truthful about the oil plumes in the Gulf, and they haven’t been truthful about how quickly they are paying the claims of our citizens.
“Maybe somebody hit them with a truth stick this morning, and they are now telling the truth,” Kennedy said. “I hope so.”
The financial contingency plan should cover a variety of options, he said. Legislative action could be required before the regular session ends June 21.
“Do we issue bonds? Do we seek a line of credit?” Kennedy said. “We need to get some advice from some expert bankruptcy lawyers, so that we don’t miss a beat if BP does file for bankruptcy.”
The state has hundreds of millions of dollars of unallocated capacity for Gulf Opportunity Zone bonds, which will expire at the end of 2010. “Extending that program would be a tremendous help,” the treasurer said. “The situation right now is that we need all the help we can get.”
BP has $81 billion in net tangible assets, Kennedy said, but most of those assets are illiquid. It has only $12 billion in cash and short-term investments.
“Credit Suisse has estimated that BP’s cleanup costs could be as much as $23 billion, and that doesn’t include claims from fishermen and the tourism industry,” Kennedy said. “It doesn’t include claims from businesses and individuals harmed by the spill.”
After hearing last week that BP may not have any reserve funds set aside for a spill, Florida Attorney General Bill McCollum demanded in a letter that the company put $2.5 billion in an interest-bearing escrow account for long-term economic damages the state could suffer. The $2.5 billion represents an economist’s early assessment of the potential damages from the disaster.
The share price of BP stock has fallen 50% since April 20, when the drilling rig exploded. But the company said late last week that it still had “significant capacity and flexibility in dealing with the cost of responding to the incident, the environmental remediation, and the payment of legitimate claims.”