Obama really, really, doesn\’t want to do this

The US administration signalled that BP may lose its exploration and production leases as retribution for the catastrophic spill.

There are all sorts of things the US might want to do about the spill but tearing up the rule of law really isn\’t one of them.

Not issuing more leases….that would be fine. \”We don\’t want you\” would simply decrease the price of such leases to the detriment of the US taxpayer, but it would be fair enough. \”We\’re not going to let you drill on exploration leases already granted\” would be a little odd but still understandable: claim safety reasons or some such.

\”We\’re going to withdraw your production leases\” would be an absurd violation of contract law. And however much it would please the baying mob it would cost the US dearly in the long term. For the government tearing up the rule of law would, as the Russian example shows us, cost a fortune over time. It throws every contract in that country into doubt.

It would also be, as far as I can see, unconstitutional. It would be a \”taking\”, something for which the government would have to pay BP the full current value of those leases. And as I don\’t see the public being willing to pay such fees, then I can\’t see how the confiscation of such production licences could be legal.

11 thoughts on “Obama really, really, doesn\’t want to do this”

  1. It’s possible that the leases contain a clause saying “if the lessee commits egregious breaches of federal law, then this lease is forfeit”, or something similar. If not, then yes, completely.

    Semi-relatedly – I read today that Tony Hayward’s background is as an offshore drilling engineer – I’d previously assumed he was just a general suit.

    This supports my theory that BP is doing as good a job as anyone possibly can on stopping the leak (also based on the incentive structure – they’d be crazy not to), but a rubbish job at the PR campaign, because under their engineer-led regime PR hasn’t been viewed as a strategic priority…

  2. This administration screwed the securitized bond holders at GM. Four other constitutional violations that I know about. November can’t get here soon enough – sorry world!

  3. I can see there are two competing principles in cases like this though. Namely can the rule of law trump no parliament or other governing body binding it’s successor. If that were the case incumbents could simply write contracts of unlimited duration for things such as the congestion charge, which could therefore never be repealed. I think that is the reason that it has taken Boris so long to get rid of the Western extension of the charging zone. Not as black and white as it might appear at first sight, though I’m prepared to believe Obama is acting unreasonably.

  4. @Ian Reid “Namely can the rule of law trump no parliament or other governing body binding it’s successor.”

    The two are the same and linked. A Parliament trying to create an unlimited contract is not authorised to do so, so the contract, under Rule of Law, is not valid in that regard. It is like me taking out a debt to be paid for by my kids…oh…

  5. johnb: Hayward’s PhD is in Geology, not Engineering. But you’re right, he’s a practical man by BP background.

    After Bhopal and the demise of Union Carbide, I thought that it would be axiomatic not to put your company’s name on bad kit in backward or no-rule-of-law countries, but BP insisted on sticking their label on Amoco. Unwise.

  6. Dearie,

    Just because he’s got an ology, even if its geology, don’t necessarily mean Dr Hayward is practical. Believe me I should know, I have the misfortune of an office on the same corridor as our geology department.

    John B

    I’m not sure about these let out clauses; mineral leases of which I am aware generally don’t have them. Bad behaviour is met with fines, civil lawsuits for damages and/or less quantifiable black marks that reduce a company’s chances of renewing existing leases and acquiring new ones.

    Still, the whole debate is academic: Socialists couldn’t give a damn about the law. As our late, unlamented government liked to say: “Sod the courts of law, we’re only concerned about the court of public opinion?”

  7. The underlying notion behind all this anti-oil posturing is Obama gearing up for a nuclear power overhaul, I think he’s smart enough to know fields of corn and rows of windmills won’t cut it.

    Oil exploration is getting difficult, bigger risks financially and environmentally are being taken to get to the oil, the market just needs a little shove in the right direction and we can check out of fossil fuel anonymous, and put the world to rights, lower emissions, deprive the tyrants of their income, etc.

    Saying all that. I’m not entirely confident Obama is the guy to do it.

  8. Ian-
    ” I think he’s smart enough to know fields of corn and rows of windmills won’t cut it.”

    There’s really no evidence to support that and most of his recent statements in favor of wind would lead to another conclusion. He does, however demonstate the usual stupidity about “saving oil” by adding electrical generation. Up until the USA (or anywhere) has a significant percentage of transport powered by electricity, 100 new nukes will not save any significant amount of oil.

  9. Semi-relatedly – I read today that Tony Hayward’s background is as an offshore drilling engineer – I’d previously assumed he was just a general suit.

    General suits are very rarely found at the top of a major oil and gas company. In Shell, the previous CEO was unusual in that he came from their downstream sector when usually they come from E&P. Most of the industry bosses I met had project or engineering experience, and were never accountants or parachuted in from being CEO in some other industry. That Hayward is a former offshore drilling engineer is quite normal.

  10. “or anywhere” – 27% of Japan’s passenger transport is powered by electricity, as is 15% of Switzerland’s passenger transport.

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