Oil spill cost past $1.6 billion, will get worse

Oil has been gushing into the Gulf of Mexico for almost two months, leaving in its wake a sheen of oil covering over a third of the sea. With every day that passes, the escalating cost of the disaster becomes almost unquantifiable, as more people and wildlife are affected.

Added to this is BP's failure to stem the flow of oil leaking into the sea, hurricane season fast approaching which could force oil up the east coast, and the impending legal battle between BP and... well everyone, and the catastrophe that started on 17 April could reach an epic financial level, if it hasn't already.

According to Business Management Europe, BP's shares have taken a hit, which is no surprise. BP are off $4.20, or 12 percent, at $30.50.

And in the last week BP has taken another hit, with the cost of the crisis set to rise this time to the tune of $350 million, including payments of $25 million each to the states of Florida, Alabama and Mississippi to help them fight the environmental damage of the disaster.

BP heading for Chapter 11?

Last week energy investor Matt Simmons of boutique investment house Simmons & Co gave BP a month before they filed for Chapter 11, despite BP having a 2009 net income of $16.58 billion.

"[BP] have about a month before they declare Chapter 11. They're going to run out of cash from lawsuits, cleanup and other expenses. One really smart thing that Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP doesn't have enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this my guess is that they'll panic and go into Chapter 11."

BP have the resources to cover the escalating cost - now at $1.6 billion - but could be facing what is dubbed on Wall Street as the 'Texaco' effect, after Texaco was forced to file for Chapter 11 because it could not afford to pay a jury award worth $1 billion to Pennzoil. Such a jury verdict might push the cost of the spill into the hundreds of billions.

So far around 51,000 compensation claims have been submitted of which 26,500 have been paid, according to the Guardian. The oil giant admitted, though, that "is too early to quantify other potential costs and liabilities associated with the incident."

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