Warning: You may hear a faint, unidentified cracking sound later today. Don't be alarmed: It will simply be the U.S. Justice Department's mighty slap across BP's wrist.
The government later on Thursday will announce a record criminal penalty against BP for the Deepwater Horizon oil spill in 2010. The criminal fines and penalties will be $4 billion, to be paid out over five years, and another $525 million in payments to the Securities and Exchange Commission to settle securities charges, BP says.
Sounds like a lot of money! And the company will plead guilty to several criminal charges, including obstruction of justice and 11 felonies related to the 11 people who died in the Deepwater Horizon disaster. Four people may even go to jail in the case, the BBC says, which would be a refreshing change from how the Justice Department has treated people involved in, say, the financial crisis. BP still faces years in court fighting civil lawsuits.
But compared to the damage done to the Gulf of Mexico, and to the total amount BP has estimated the disaster will ultimately cost it, and to the massive profits BP rakes in every year, today's $4.5 billion tab looks a lot smaller. If you want a measure of just how worried BP needs to be about this fine, take a look at its stock price: It was up more than one percent when the news broke on Thursday. It has since given up some of those gains, but investors are hardly panicking. This hit was not nearly as bad as it could have been.
Here are five different ways to put BP's penalty in perspective.
Sales And Profits: BP in 2011 recorded revenue of $234.25 billion, with net income of $16 billion, according to data tracker FactSet. In other words, BP could pay even a $10 billion penalty with just nine months' worth of profits. A $4.5 billion penalty would wipe out a little more than a single quarter's profits. In this case, it will be paid out over five years -- beginning in 2013 -- meaning the hit to quarterly profits will be much gentler. BP has more than enough cash to cover this, meaning it won't have to borrow money to pay the costs, saving on interest payments.
What BP Has Already Paid: This number cuts in BP's favor, at least in the corporate-karma department. In 2010, the year of the spill, BP recorded a net loss of $2.4 billion, according to FactSet, hammered by costs associated with the spill, including $17.7 billion it spent helping to clean up the spill, part of a total $42 billion in pre-tax accounting charges the company has taken, including today's fine. Also included in that total, BP has paid about $15 billion so far into a $20 billion trust fund to compensate victims of the spill. The fund had paid $6.7 billion in claims by the end of 2011, according to BP.
Stock-Market Loss: BP's stock price is still down about a third from its $60 price before the spill, a loss of about $60 billion in market value, according to FactSet. Again, this is a mark in BP's favor, karma-wise.
Exxon Valdez Costs: Initially the Exxon Valdez oil spill in 1989 was much worse financially for Exxon Mobil than for BP. An Alaska jury ordered the company to pay $5 billion in punitive damages, matching a full year's profit in 1990. But Exxon spent years aggressively fighting the case in court and eventually got the Supreme Court to slash its penalty to just $500 million. The total cost of cleaning up the Exxon Valdez spill has been estimated at $7 billion, a little more than a year's profit for Exxon at the time. In terms of total payments so far, BP's pain has already been worse than Exxon's, though its criminal penalty will be much less. The difference here -- again with the corporate karma -- is that BP is not expected to fight the Justice Department penalty tooth and nail for decades.
Damage To The Environment And Public Health: This is still incalculable, given the potential for unforeseen long-term effects. The Pacific herring fishery in Alaska's Prince William Sound did not collapse until four years after the Exxon Valdez spill, the New Orleans Times-Picayune noted recently. This could be running up the score on the negative side of BP's karma ledger for years to come.
This piece has been updated with details throughout.