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The Gulf of Mexico BP Oil Spill is the worst natural disaster in US history and the hurt is coming down on British Petroleum (BP) for their negligence and the damages they have caused… or so we thought.

Today, the White House announced that BP has agreed to put $20 Billion in a fund to pay for damages and claims due to this disaster. This comes a day after new estimates place the amount of oil spilling into the Gulf per day at 40,000 – 60,000 barrels. Since the estimates and math for this fiasco haven't been adding up from the start, let's compare this oil spill to a previous spill, The Exxon Valdez and see how we're doing, shall we?

Exxon Valdez Oil Spill:
- Year: 1989
- Barrels Spilled: 250,000
- Cost of clean-up: $8.6 Billion ($14.69 Billion in 2010 dollars)

    * $2.5 Billion in allocated funds by Exxon for clean-up
    * $5 Billion charged in punitive damages*
    * $1.1 Billion in other settlements

*Exxon has appealled this ruling up through 2008 and the supreme court reduced this settlement value numerous times. The initial 1994 ruling also lead to the first ever modern day credit default swap, when Exxon obtained a $4.6 Billion line of credit from J.P. Morgan & Co. Ironic that this disaster was something that helped lead to our recent financial disaster.

BP Deepwater Horizon Oil Rig Explosion/Spill:
- Year: 2010
- Barrels Spilled: 2.32 Million – 3.48 Million (As of 58 days into spill)
- Cost to pay for clean-up: $20 Billion (As of June 16th, 2010)

As stated above, the 2010 value of Exxon's initial agreed cost to clean-up the Exxon Valdez Oil Spill would be $14.69 Billion. Let's work on some simple math here:

In 2010 Dollars:
- Clean-up/payment in damages for 250,000 barrels of oil = $14.69 Billion
- As of today, as much as 3.48 million barrels of oil have spilled into the Gulf of Mexico
- That means the BP Gulf Oil Spill is 13.92 times LARGER than the Exxon Valdez Oil Spill
- Estimated cost to clean-up/pay for damages: 13.92 x $14.69 Billion = $204 Billion

Hmmm, I'd say BP is getting quite a deal, wouldn't you? And one may wonder how they were able to bridge this gap between $204 Billion and $20 Billion. How about another history lesson and comparison to the Exxon Valdez Oil Spill? As stated above, Exxon appealed the ruling of their having to pay $5 Billion in punitive damages up through 2008. And the result: In 2008, the Supreme Courts ruled 5-3 that Exxon is to pay no more than $507.5 Million in punitive damages for the Exxon Valdez Oil Spill.

The original ruling was that Exxon was to pay ~$5 Billion, they actually ended paying out closer to ~$500 Million. Roughly 10%. BP's current expected liability, if the amount going into escrow is any indicator, is evidently ~$20 Billion. Whereas (asssuming a linear projection) their actual liability should be closer to ~$200 Billion. Oh look, there's that 10% again. Thus, we bridge the gap.

One can't help but wonder if the US Govenrment isn't just pricing a string of BP legal victories through our court system into the total going into escrow. Considering the pathetic condition of the US courts ability to hold corporate malfactors accountable, this is probably a shrewd decision. But, what if BP loses? Wait, wait… who are we kidding? I'm sure $20 Billion will be just right.