BP, Anadarko and Mitsui Co: conflict among partmers

BP is not the sole owner of the deep-water Macondo well that continues to spew large amounts of crude oil into the Gulf of Mexico.  Industry practice with expensive or high-risk projects is to form a consortium of owners to avoid making a bet-the-company investment in a single project.  In this case, BP owns 65%, Anadarko 25%, and Mitui Co 10%.

The same groups may work together on various projects over the years.  Many smaller companies consider it a badge of honor to be allowed into a drilling partnership with, say, ExxonMobil or Chevron.

The partner with the most experience and/or largest ownership share is designated as the operator, meaning he basically runs the drilling project.  The operator makes all the active drilling decisions, but keeps the other partners informed of what’s going on.The operator of the leaking well is BP.

Before drilling begins, all the partners sign an operating agreement.  Anadarko has recently filed an 8-k with the SEC that contains a copy of the Macondo well agreement.

who are Anadarko and Mitsui Co?

Anadarko is one of the few independent oil exploration companies left.  It has experience both in onshore and offshore drilling.  Mitsui Co is an import-export company, called a shosha or trading company in Japan.  It is part of the Mitsui group, today’s equivalent of the zaibatsu, or Japanese industrial conglomerates that were broken up after WW II.  Mitsui Co is an industrial middleman, selling Japanese products abroad and providing access to Japanese corporate customers for foreigners wanting to enter the Japanese market.  Like other Japanese trading companies, Mitsui has been focussing on imports of natural resources in recent years.  It has also shifted from merely charging a fee for its distribution services to also seeking an equity share in natural resource development projects.

what’s happened so far

1.  Everyone knows that after a grilling by Congress, BP “voluntarily” agreed to set up a $20 billion fund to be run by the US government, that would compensate parties injured by the oil spill in return for agreeing not to sue.  How this will work in practice is still up in the air.  Neither Anadarko nor Mitsui were called to appear in Washington.

2.  Anadarko has publicly claimed that the spill results from BP’s gross negligence, thereby invoking a provision of the operating agreement that says in such cases Anadarko (and Mitsui) are not liable for damages the spill causes.  The operating agreement provides for disputes of this sort to be decided by arbitration.

3.  BP has announced it is going to sue Anadarko in US court.  BP has apparently sent Anadarko a number of bills for its share of cleanup costs, that Anadarko has refused to pay.  Mitsui seems to have said nothing so far.

4.  The Financial Times has recently reported that Anadarko knew about and approved major drilling decisions that testimony in Congress suggest caused the disaster.   Anadarko maintains that the drilling plan was okay, but that it was implemented poorly.

two standards, two venues

simple negligence vs. gross negligence

These are fuzzy concepts. Both involve a failure to exercise care.  To me (remember, I’m an investor, not a lawyer), the difference is that to be grossly negligent, one has to act without regard to the foreseeable negative consequences of his action–in other words, to do something no same person would do.  There are two complicating factors in this case:  the people involved are technical experts, so the standard of care they are held to is higher than that for ordinary people; on the other hand, Anadarko’s experts and government regulators both approved the BP plan.

court vs. arbitration

To me, the biggest question about a court proceeding is how the process might be affected by all the negative publicity–including scoldings by the President and Congress–surrounding BP.  The arbitration will doubtless be closed, so only a real expert in arcane oil industry disputes will be able to handicap this one.

too many imponderables

I think in any investment it’s important to have some information or possible development that you feel very confident about and which is not yet discounted in the price of the stock you intend to buy.  In this case, for all the stocks involved–BP, Anadarko, Mitsui–all I can see is important possible developments that I don’t understand.  For me, holding any of them would be more like buying a lottery ticket than making an investment.

Leave a Reply

%d bloggers like this: