Should the U.S. government seize assets of British Petroleum (Seize BP petition) to block a potential corporate move to strategic bankruptcy? That's a debate which is happening right now, amid growing public pressure on the Obama government to do something, anything.

Experts Double Estimated Rate of Spill in Gulf - NYTimes.com

Could the "cure" be worse than the disease? Maybe. Seizing assets can lead to a falling domino chain reaction; the risk of bankruptcy is probably quite low at the moment however nothing prevents government from making matters worse.

If there were to be a time when risk of bankruptcy goes markedly higher it is likely years into the future when criminal and civil negligence and liability claims are making their way through the courts. Such proceedings took decades in the case of the Exxon Valdez oil spill, and that company remains the largest and most profitable petro company on the planet.

Even though BP's market capitalization has fallen markedly, that in and of itself is not a portent of bankruptcy. If it were, thousands of public corporations would be dead in the wake of the 2008-09 meltdown.

A bigger issue for BP than the value of their issued public stock is their debt load, now and into the intermediate future. At present their debt load is an entirely reasonable $25 billion, supporting operations on assets worth more than $130 billion USD. The company has the potential to generate cash flow of about $40 billion annually, a key measure of solvency in the oil business. That cash flow doesn't stop from other operations while the disaster in the Gulf continues.

The credit markets are pricing in an uncertain future, with credit default swap spreads having risen very markedly - probably unsustainably so, given that due to its still very strong financial situation BP continues to hold a double A credit rating which is better than many sovereign governments around the world can claim. Credit ratings drive borrowing costs. Due to the uncertainty surrounding liability claims, that credit rating might well be reviewed downward, driving their cost of borrowing up, but at this point my expectation is that such changes would be incremental over time, not sudden and paralysing.

Even if borrowing costs did become a potentially fatal weakness for the company, the U.K. (and U.S.) government could risk the inevitable public opinion backlash and extend loan guarantees to allow the company time to get through the disaster they own, and make everyone as whole as is possible given the circumstances. No amount of money will make things fully right.

Could the company try a strategic bankruptcy despite its financial strength? Maybe, but political pressure from both the U.S. and U.K. ought to prevent that, because at that point seizure becomes the threatened weapon of choice. The company or whatever form it might take in the future simply cannot operate around the globe without the express blessing of these and other major governments. Canada can play a role here, too.

Changes to Oil and Gas Regulations Required, Internationally

Don't get me wrong, public pressure is important right now. I'm all for extracting a huge punitive toll on BP and all those found to be responsible.

But even more important than getting even with those responsible for this latest assault on the planet is using the moment to achieve lasting change to industry regulation, not just in the U.S. but in Canada and hopefully in other major off-shore oil producing countries as well, including the UK (North Sea). Use the public's sudden awakening to the very real risks to drive important policy change that will help protect our land and oceans now and into the future.

Oil covered Brown (before oil) Pelican along Louisiana coast, 2010-06-03

There is clearly a need to revisit existing U.S. EPA legislation which provides for a ridiculously low cap on the liability of oil and gas companies. BP has already blown through all these caps in its spending. Affected states may have other legislation which supersedes the federal law in this case, and may have unlimited liability provisions. Canada similarly must have another look at corporate liability legislation, not just for the oil and gas industry but also for the nuclear industry which is subject to a cap on liability that amounts to pennies relative to the potential scope for nuclear disasters.

In the here and now we need to make the playing field level around the world to counter arguments such as those being pushed by Danny Williams (Deepsea relief well not feasible, Williams says - Nova Scotia News - TheChronicleHerald.ca) that costs would be disproportionate and lead to investment dollars going elsewhere.

Williams is parochial and wrong. Oil gushing into our oceans and their currents at the rate of one Exxon Valdez every eight days knows no borders. It doesn't matter if the problem originates in the Gulf of Mexico or in Nigeria or off-shore Canada's Atlantic coast.

If the billion dollar boondoggle that is the G20 were to accomplish anything of substance, it could work to achieve agreement on offshore exploration and production safety measures including mandating the provision of emergency relief wells. Sure, these are expensive, but not unreasonably so if all producers are subject to the same regulation. Come on G20, how about doing something that matters for a change?

Off-shore oil and gas producers are not the only component of the energy industry that need a renewed regulatory focus aimed at them. BP has unwillingly opened the door wide to a much higher degree of scrutiny and regulators around the world should be running through that opening before it closes. Regulators in Canada and the U.S. often act more as industry facilitators than as guardians of the environment, a global, public, asset. That has to change.

Make BP pay, yes. But make the entire industry subject to better regulation. That would be the best legacy this disaster could leave in its wake.

PS: Let's see a permanent ban on offshore drilling off Canada's west coast, and on export tanker traffic in our inland waters. Any parent knows there's a difference between need and want. Canadian's don't need it, and most of us here in B.C. don't want it. Read and take action:

• Ottawa Citizen: Federal ban on offshore drilling, oil tankers not legally binding says Harper government
• CBC News - British Columbia - Gulf oil spill fuels West Coast tanker fears
• Dogwood Initiative Responds to Enbridge Regulatory Application - Dogwood Initiative
• Send a letter to Michael Ignatieff and MPs - Dogwood Initiative

Federal Environment Minister Jim Prentice wants to turn our beautiful, abundantly productive, west coast from this:

... into this:

... or this:

Globe and Mail, Friday May 6 2010 -- Environment Minister Jim Prentice says there is no need for a moratorium on future offshore drilling in Canadian waters while the world tries to figure out what went wrong in the Gulf of Mexico.

The spill of thousands of barrels of crude a day into the Gulf, and the environmental devastation that now threatens the Louisiana shore, have prompted other governments to put future drilling on hold, even if it could mean higher energy prices.

California Governor Arnold Schwarzenegger has issued a moratorium on future oil drilling permits off the state's coast until it can be determined that a disaster similar to the one in the Gulf of Mexico can be avoided. [And U.S. President Barak Obama has put new drilling in the Gulf of Mexico on hold as well.]

But Mr. Prentice sees no need to follow the example set south of the border.

"I don't think the answer is a moratorium,"the minister told reporters on Thursday. "We are all appalled by what we are seeing in the Gulf of Mexico. Everyone is worried about that. Here in Canada, we've not had those kinds of incidents and that's because of the strong regulatory environment that we have had with the National Energy Board (NEB)."

Canada hasn't had the sorts of incidents the U.S. and other nations has had only because our offshore oil industry is tiny by comparison. When you increase the rig count and number of areas being exploited, and increase the outbound tanker traffic, the probability of a serious accident increases as well.

The U.S. takes its coastal environment very seriously. If they can't get it right, 100% of the time, then how are we - relatively green to offshore oil and gas production - to be expected to get it right, 100% of the time?

Minister Prentice ought to know that Canada has quite enough environmental disasters on land, and our track record of managing our oceans is far from laudable. We should not sell out our coast for a fistful of dollars.