Quick BP Analysis

It seems like a miracle that Obama was able to convince BP to establish a $20 billion escrow fund to compensate those hurt by the ongoing oil plume in the Gulf of Mexico. But just for fun let us take a closer look at the effect on BP’s finances:

1. BP will establish a $20 billion escrow fund, but will pay only $7 billion into it during 2010.

2. BP is a British corporation, but has a very large operating entity in the US but only about 30% of it’s income is derived from the US.

3. By Generally Accepted Accounting Principles (GAP), BP must book the entire $20 billion expense in the year accrued. Therefore, they will book a $20 billion expense in 2010, reducing their US tax liability by $7 billion.

4. Our leader also convinced this massive corporation to show their concern for the “small people” by withholding dividends to their shareholders for the last 3 quarters of 2010. This reduces their outward cash flow by about $7.5 billion, including approximately 40% of that amount to US citizens. Assuming that the Bush tax cuts will survive through 2010, the US Treasury will lose another $450 million in taxes on that amount.

So here are the figures:


BP Cash Flow:

o Escrow funding ($7 billion)

o Dividend saving $7.5 billion

o Tax savings $7 billion

o Net favorable cash flow : $7.5 billion


US Treasury Tax Receipts:

o BP Corporate income tax .... minus $7.5 billion

o BP Shareholders ..... minus $0.45 billion

o Net unfavorable tax receipts ..... minus $7.95 billion

Bottom line: The $20 Billion BP is putting up will create a $7.5 Billion positive cash for BP flow this year. There is no question that this is a tragedy for the environment and that BP will obviously be negatively effected by this incident for years to come. But when we look at Obama's action's in this event, he isn't exactly sticking it to them.