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Can BP survive the Gulf spill? Can its CEO?

As we all know, Einstein went to his grave refusing to accept quantum mechanics until it was linked with a unified theory of physics. In that vein, it's not surprising to see the Gulf of Mexico oil spill, too, setting the minds of restless geniuses to work. In one of the latest examples, Federal Judge Richard A. Posner, the indefatigable Chicago writer and thinker, outdoes himself with a unified theory of catastrophes. The gulf spill, Posner argues in The Washington Post, is of a piece with the global financial crisis, the Indian Ocean tsunami of 2004, and Hurricane Katrina the following year, not to mention flu epidemics, the extinction of species, nuclear accidents, global warming, and the collision of an asteroid with Earth. Why does no one take action to prevent or avoid injury in such catastrophes? ponders Posner. Because there's no date certain of their occurrence.

That's all very interesting. As for me, I'd like to get past the waiting and simply learn at last whether or not BP CEO Tony Hayward and the company itself are toast. For help to this end, I called and emailed around to people in and out of the oil industry. Among the first was Ken Robertson of Paddy Power, a Dublin-based online betting site. Sometimes when people are putting down their own money, they find judgment inaccessible to the rest of us.

Robertson said that while Paddy Power isn't accepting bets on whether BP survives, bettors -- Robertson called them "punters" -- are increasingly unsure of Hayward's longevity. As of last Friday, he told me, the chances of Hayward lasting beyond the end of the year had shrunk from 8 in 11 to 8 in 13, with about a hundred people getting in on the action in just over a week of betting. "Betting has really escalated over the past 48 hours," Robertson emailed.

To be fair, Hayward has been in the job just three years, following a long leadership stint by John Browne. Browne built BP into the globally competitive giant that it became in the 1990s, but in 2007 left the company accused also of cutting corners when it came to safety. Regardless, to the degree that a dismissal of Hayward can preclude a breakup of the company, BP's board of directors will sacrifice its CEO.

The higher-stakes gamblers on Wall Street have weighed in, too, knocking BP's share price down by 38 percent since the April 20th accident. Both Moody's and Fitch have downgraded their rating of BP's bonds -- such ratings are a sign of market confidence, with lower ratings forcing BP to pay a higher rate of interest in order to attract investors to buy the bonds that it sells to finance projects.

This isn't science, of course. Investors are engaged in a guessing game on the survival of Hayward (in this Wall Street Journal story by my former colleagues Guy Chazan and Benoit Faucon) and BP (in this strong piece co-written by the Financial Times' Lina Saigol, Miles Johnson and Ed Crooks). At the FT, Joseph Cotterill writes that "the market is abuzz" with discussion of BP as takeover target. The accident has also cast a cloud over BP's partners in the Macondo Prospect, the oil and gas play where the rig disaster took place: Anadarko Petroleum's share price is down 40 percent, and has also suffered a Moody's downgrade; Japanese trading firm Mitsui's shares are down 30 percent.

Part of this is due to the uncertainty about what the cleanup, the fines, and the lawsuits ultimately will cost. BP says it's already spent $1.2 billion on the spill. Add to that the $4,300 per barrel that, in line with the Clean Water Act, the federal government can penalize BP and its partners, and you've got almost $6 billion in just one category of fine.

But more important is the damage to the corporate image. (What's the first thing that pops into your head when you hear the word "Exxon"?) A spill of this type affects BP's ability to buy the rights to new fields around the world, and to attract the best talent to work at the company, says Edward Chow, a former senior executive for Chevron and now a fellow at the Center for Security and International Studies. "It's potentially a company killer," Chow told me.

A sign that BP and the rest of Big Oil have explaining to do around the world comes from Russia's powerful behind-the-scenes oil czar, Deputy Prime Minister Igor Sechin, who says the country will tighten up offshore drilling rules in light of the gulf spill. Look for such signals elsewhere as well.

Chow thinks that already the other oil majors are looking hungrily at BP: "What if BP becomes available? Which pieces do I want?" he said. "If they aren't doing this, they should be fired."

Since he has experience of a personal nature, I called John Imle, the former president of Unocal. As you recall, it was the 1969 Unocal oil spill offshore from Santa Barbara that gave full voice to the vigorous global environmental movement. Regarding the fate of BP and Hayward, Imle was blunt. "It could be company threatening, and job threatening," he said. Hayward "worked mightily to change the (BP) culture, but one assumes he didn't quite get there."

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