Hasn't BP Suffered Enough?

This article originally appeared on RealMoney.com on Sept. 4, 2014 at 2:40 p.m. To read more content like this AND see inside Jim Cramer's multi-million dollar portfolio for FREE... Click Here NOW.

BP (BP) was found grossly negligent today for its role in the 2010 Deepwater Horizon disaster in the Gulf of Mexico. It is a surprising result, and it will continue to hang over the company, at least until the amount of the fines BP will have to pay under the Clean Water Act are finally determined. This makes the stock -- again -- impossible to own.

But this isn't a column about BP -- it's a column about corporate responsibility in the oil patch and what companies can expect, even when they have done their utmost to atone for an admitted negligent mistake.

And the message being sent is anything but good.

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The Deepwater Horizon blowout was the largest oil spill in U.S. history, spewing millions of barrels of oil into the Gulf, costing 11 lives and disrupting the livelihoods of hundreds of businesses along the Gulf coast. During the 87 days following the disaster as oil and gas spewed, the horror and uncertainty made the event the most seminal in offshore exploration disasters, bringing about a new wave of regulations and fear of deepwater drilling and its inherent risks.

There is no denying, from the facts of the case, that BP was negligent and liable in the massive spill and it has admitted so. But since that spill, the Gulf of Mexico has shown a remarkable ability to heal itself, and that has validated the use of massive dispersants and boom-corralling techniques; there were few remaining signs of the spill within months of arresting the runaway well and today you virtually could not tell it had ever happened.

BP undertook a massive campaign of cleanup and personal responsibility for the blowout, initially depositing $20 billion into a compensation fund administered by Ken Feinberg under the "suggestion" of the Obama administration. BP initially assured the public that it would compensate for every legitimate claim outside of that fund and undertook a huge public safety upgrade for all of its operations, and an advertising campaign to restore its credibility in the Gulf and throughout its U.S. operations.

The company set aside $43 billion dollars -- a gargantuan total -- to compensate harmed parties in the spill, but it's clear that $43 billion will not be enough now. Every local government and business from New Orleans to Pensacola, Fla., has sued BP for damages, with many of these entities refusing the mediation of the Feinberg fund. The parasitic nature of these lawsuits has been well documented by Bloomberg, and it has forced CEO Robert Dudley to renege on the company's compensation promise.

With this ruling of gross negligence from a federal judge, these parasites will now expect, and get, even more undeserved "compensation," and it has opened BP to receive the maximum penalties from the Justice Department under the Clean Water Act. At dispute now will be the total number of barrels spilled: BP maintains it's a more conservative 2 million barrels and the feds project 5 million barrels or more, with a maximum fine of $3,400 per barrel. That's possibly another $17 billion in fines likely to be levied against BP, if the bad luck for the company continues to hold up -- which seems likely.

One overwhelming question I have is the result of BP's efforts to "make right" the mistakes of Deepwater Horizon on corporate behavior. We tend to rail against the lack of corporate ethics in banking and the energy sectors particularly, but I find in this case a compelling reason for companies to deny their mistakes and shirk their responsibilities in the future.

What should BP think, or what should any company think, about a justice system that looks to mete out the maximum fines, even after liability is admitted and responsibility is fully taken? To me it implies that moral behavior at the expense of fiduciary responsibility is likely to be unrewarded -- that companies should admit no failings, fight every ruling, appeal every negative result and deny any liabilities.

Is that the corporate policy message we want to be sending?

But that, to me, is precisely the message that Judge Carl Barbier has sent to the corporate world today. It's unlikely to go unheeded.

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At the time of publication, Dicker had no positions in the stocks mentioned.

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