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Oil Leak’s Impact on U.S.-British Relations, Economics Examined

Lawmakers continue to hold U.K.-based BP's feet to the fire over the ongoing oil leak, sparking some tensions between the U.S. and Britain. Judy Woodruff gets two points of view about the company's future, the billions of dollars at stake and the political divide.

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    We take a closer look now at how the disaster is changing the economic and politics connected with BP here and in the U.K. Byron King is an energy analyst with Agora Financial, a financial news publisher. And Sam Fleming is associate city editor and covers economics and energy for the British newspaper The Daily Mail. He joins us from London.

    Gentlemen, thank you both.

    And, Sam Fleming, to you first.

    How closely is the British public following this story of the spill? And what are they saying about it?

  • SAM FLEMING, The Daily Mail:

    Well, I think, for the past few weeks, the British public have been watching this disaster with horror and have largely seen this as an environmental disaster in the United States.

    It has not really seen — been seen as a story which has huge direct ramifications for the U.K., however, despite the involvement of BP. However, I think that situation has changed somewhat in the past few days. Now people are really honing in, zoning in on the fact that this is a U.K. company involved in a major catastrophe in the U.S.

    And they are becoming more acutely aware that there are ramifications both in the U.S., and also in the U.K., because it is a company which is — has iconic status in the U.K., and is also a company which has huge corporate clout and also economic impact for the U.K.


    Well, expand on that, corporate clout, iconic status. Help us understand how important BP is there.


    Well, BP has a very long history in the U.K., going back many decades. It's an iconic company. It was for a while the largest company in the U.K. as well by market value, and is seen as really a corporate champion, almost, or has been until recently, for the U.K.

    It also pays an extraordinary amount of income to British pension funds and retirement funds. It pays about one pound in every seven in dividends, in the dividends that pension funds receive in the U.K. And, also, with a market value of around 120 billion pounds, until recently, when it lost about 40 percent of that, it was close to being the largest company in the U.K.

    It also has important ramifications, because BP is economically quite significant. If you think about the amount of taxes it pays to the U.S. — U.K. exchequer, not to mention the U.S. treasury, and also the fact that it contributes to Britain's balance of payments, the amount of income that flows into the U.K., thanks to the fact that it has a huge company which generates massive amounts of cash, about $40 billion of cash a year, around the world. That does actually impact Britain's broader economic situation.


    Byron King, what would you add to that? Help us understand how what BP was worth before all this and how much it has been hurt financially.

  • BYRON KING, Agora Financial:

    Well, clearly, it's been hurt financially. Half the stock market value is gone, although, from the standpoint of assets and cash flow, it still has, you know, quite a bit of life into it.

    And for as much as people in the U.S. are thinking this is a British company, this is really an American company as well. Out of 80,000 worldwide employees, over 30,000 are in the U.S. Of the stock market ownership, about 40 percent of BP shares are owned by — by — you know, within the U.S.

    And BP is the largest oil producer in Alaska. It is half owner of the Alaska pipeline. It's the largest oil producer in the Gulf of Mexico. Globally, BP produces over four million barrels of oil equivalent per day, which is about 5 percent of the total global world oil output.

    It's the largest supplier of liquid fuels to the U.S. Department of Defense. So, we have to be very careful about, you know, doing things to BP that — that will disrupt all of this in a way that can turn an environmental catastrophe into an economic and energy catastrophe, not just for the U.S., but worldwide.


    Byron King, you just said we have to be careful. But do you that believe BP's survival is at stake?


    I didn't think survival was at stake a couple of weeks ago, when we were just analyzing things in a rational sense of cash flow, assets, and, you know, the ability to, you know, for a very large company to deal with a very bad environmental disaster.

    In the past week, we have seen, I think, a lot of political hysteria kick in, although I also think that, this coming week, we're going to see some of that political hysteria slow down. I think that people are going to back off.

    It — I understand that the new prime minister of Great Britain is going to discuss it with Mr. Obama this weekend. The deputy prime minister was talking about megaphone diplomacy. These are — these are things that grownup nations need to understand.


    Sam Fleming, we have been reading stories about how the — in Britain, there are politicians saying American politicians are being unfairly tough on BP. How much of that is actually going on, and what does that represent?


    I think that's quite a recent development over the past few days. And I think it is a real development.

    There are politicians and also members of the public who feel that there is a slightly xenophobic air now developing around this story. I'm quite struck by the number of e-mails and letters we at The Daily Mail are getting from our readers saying that they feel that this is now becoming an anti-British story, as well as a corporate and economic and human catastrophe.

    And I think people are quite uncomfortable about that, because people certainly in the U.K. prize the relationship with the U.S. extremely highly, and they find it very disconcerting to feel that there is quite a serious rift potentially developing because of the actions or inactions of a very large U.K. company.

    That is beginning to drift into political rhetoric, as you said. The mayor of London, Boris Johnson, is one of those who has talked about anti-British rhetoric in — on Capitol Hill. And I think that that — that has put David Cameron, the prime minister, in quite a tricky position. He needs to be aware of the strength of feeling that is now developing in the domestic political scene among the electorate, but while also not tarnishing transatlantic relations by resorting to what his deputy, Nick Clegg, has called megaphone diplomacy.


    Quickly, Sam Fleming, how is Prime Minister Cameron, your new prime minister, handling this?


    I think he's handled it as well as could possibly be expected, the real criticism thus attached to BP in the way it has handled the catastrophe.

    Really, I think the U.K. government has taken a hands-on — a hands-off, rather, approach to the — to the situation for the duration, really, until recently, when it has now begin to — begun to ratchet up — ratchet up the political agenda quite dramatically here.

    I think the conversation with Barack Obama will be quite important tomorrow, and I suspect, behind the scenes, there is now a great deal of pressure on both sides of the Atlantic for BP to at the very least defer its dividend in order to show that it's aware of the importance of this — of the dividend issue.


    Byron King, back to BP itself. What is its ability to handle claims? How far can it go? How deep are its pockets?


    Well, just getting to the dividend issue, BP, on an annual basis, pays out over $10 billion of dividend money every year.

    Now, as — as we have discussed earlier, a lot of that money is going to British pensioners and to U.S. pension funds as well. If — if they simply eliminated the dividend, they would have a $10 billion-a-year war chest to clean things up. And then, also, BP has another $25 billion or so per year that it's doing in capital investment around the world in other oil provinces and other energy developments.

    So, BP has a lot of cash flow with which to pay things. And, also, you need to realize that we're not asking BP and BP isn't going to pay all of its damages tomorrow. BP is going to clean things up over many, many years. This is going to play out over five years, eight years, 10 years.

    And the long-term environmental effects, we don't know. They are probably going to be monitoring the Gulf of Mexico and the Atlantic Ocean forever, for the rest of your and my life. That's for sure.


    And you're — just quickly, you are saying you believe it has the wherewithal to do that?


    I think that, based on the raw numbers, what it owns, what it does, how much cash flow it has, BP can afford financially to survive this disaster.

    If the politics become very, very ugly — and we have heard sounds of, oh, we should seize their assets, we should break them up, we should put them in receivership, you know, then — then — then things are off. You know, and who knows what would happen to those assets?

    I mean, the Alaska pipeline that BP owns half of could wind up being the China pipeline. Or the — you know, Prudhoe Bay could get sold to the Russians. I mean, there's all sorts of things that we can do that would disrupt the — you know, disrupt the energy economy of the United States.


    Gentlemen, we are going to leave it there.

    Byron King, here in the U.S., Sam Fleming joining us from London, thank you both.

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