BP’s U.S. stock price plunged over 16 percent Wednesday, before partially recovering. CNBC commentator Jim Cramer was “mesmerized” by the descent, as BP’s total lost market capitalization, since the Deepwater Horizon explosion April 20, surged to over $90 billion. Many analysts linked the drop to a Reuters report quoting a BP source saying that “at some point a line has to be drawn” regarding oil spill restitution expenses. Rumors regarding BP bankruptcy and counter-party risk exposure added to the sell off.

However, BP did not suffer the biggest stock decline Wednesday  – Anadarko Petroleum did, dropping almost 20 percent, for a total of 50 percent since the oil gusher began. Most are unaware that Anadarko owns a quarter of the Macondo well that Deepwater Horizon was tapping, while BP, the operating partner, owns 65 percent. Bloomberg reports that Anadarko’s stock has also recovered, as the company looks for ways to reduce its potential liability exposure:

“It’s not an easy situation, but they’ve got some potential defenses at their disposal that may ring-fence their liability a little bit more than some investors are figuring,” said Ted Harper, an analyst who helps oversee about $6.8 billion in assets at Frost Investment Advisors in Houston.

Anadarko “will not hesitate to take further action if necessary to protect the company and its financial health,” Chief Executive Officer Jim Hackett said in a June 3 statement. He said the company will “take appropriate steps to protect the interests of our stakeholders as facts become clearer on the root cause of the event.”

So Wednesday was pretty interesting if you like watching red numbers in steep descent. But there’s also an evolving political dimension to this story involving U.S. Rep. Charlie Melancon, D-Napoleonville, who seeks to replace Republican Sen. David Vitter in November. Melancon has decided to make an issue of Vitter’s proposals to limit companies’ liability in the event of an oil spill. Vitter’s legislation would cap oil companies exposure to either $150 million, or an amount equal to the company’s last four quarters of profits, whichever is greater. In a fund-raising e-mail sent May 27, Melancon criticized Vitter’s legislation as a “BP bailout bill” saying:

Washington politicians shouldn’t be setting arbitrary limits, because oil companies like BP should be responsible for paying whatever it costs to fix the damage they create. What sort of message does it send if we let corporations off the hook for irresponsible behavior?

For instance, a company called Anadarko owns 25 percent of the Deepwater Horizon lease, so they should be held responsible for the damage too, right?

Although Melancon removed the Anadarko example in his more recent fund-raising letters criticizing Vitter’s bill, Ryan at The Daily Kingfish took up the issue and noted that Texas-based Anadarko’s PAC has contributed significantly to Vitter over the years, to the tune of at least $14,000. Major liberal blogs like Think Progress and DownWithTyranny! have repeatedly mentioned Anadarko’s ties to Vitter, implying that Vitter’s rush to protect smaller oil companies from catastrophic liabilities might be related to Anadarko’s campaign donations. Indeed, when you review Vitter’s liability legislation from the perspective of an independent oil company like Anadarko, it does seem that the primary focus of the legislation is to protect mid-size oil companies as much as the bigger outfits such as BP. This Vitter-Anadarko linkage is strengthened when you consider Vitter’s other legislative liability proposal:

But with no consensus on a permanent [liability] cap, Vitter went to the Senate floor just before Congress recessed for an extended Memorial Day break to urge a second option in which Congress would immediately pass a measure applying only to BP and the current disaster.

Given that BP has already said it would not be limited by the $75 million cap, Congress should “codify” the BP offer into law, Vitter said, in effect making the company responsible for all damages.

“My bill would say: ‘Fine, that is a contract offer, and we are going to accept it,’” Vitter said. “That will be binding under legislation, under the law … we would remove any cap on BP for this incident.”

The benefits of this proposal to Anadarko are clear: BP owns 65% of the well, but would become legally responsible for all damages above and beyond the ridiculously low $75 million cap currently in place. Melancon believes oil companies should not have liability caps, and hopes to gain political traction this election year by railing against Vitter’s “BP Bailout bill.”

While that label has political resonance, Vitter’s bill primarily benefits companies such as  Anadarko. Vitter responded to Melancon’s criticisms by trying to cast him as an opponent of Big Oil (which is a stretch), and mocking Melancon’s claim that, over the years “we’ve allowed the oil companies to ruin our wetlands.” Even with an oil spill polluting our coast, Vitter – a stalwart supporter of Big Oil who boasts one of the worst environmental records in the Senate – obviously feels he has the political upper hand by siding with Big Oil and opposing Obama.

Defenders of a liability cap for oil companies say that a cap encourages entrepreneurship. Well, sure it does! It’s a helluva incentive when taxpayers subsidize a company’s need to insure itself against catastrophic, “black swan” events. But precisely why is it desirable to let oil companies offload their most extreme risks on to the American taxpayer? Why do independent oil companies such as Anadarko, much less the Big Oil transnationals, deserve this special treatment? If you’re going to alter the purity of the free market with entrepreneurial “incentives,” why not do it for an industry that doesn’t risk polluting the important Gulf Coast wetlands? And if the actual catastrophic risks – as pro-drilling advocates claim – are really so minute, then why would buying liability insurance be a problem for oil companies in the first place? If the risk of a Macondo blowout, as BP CEO Tony Hayward said, was truly a “one in a million chance” which could be cut to “one in a billion” or “one in a trillion,” then why would it be so problematic for a company to insure itself against such incredibly unlikely occurrences? As long as these pro-drilling advocates are accurately assessing the true risks of another blowout catastrophe, why should they need taxpayers to cap their liabilities for such an outlandishly improbable event? Unless they’ve been – heaven forfend – underestimating the true catastrophic risk to our coastal communities, shouldn’t oil entrepreneurs be able to afford catastrophic liability insurance without offloading huge portions of the risk on to the American taxpayer?

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Here are some updates to recent topics I’ve recently discussed:

Political analyst John Maginnis described how a rare oil-processing tax bill was recently defeated in the Legislature.

In the comments to my Lens post discussing taxing oil companies, Jeffrey wondered why we don’t make relief wells mandatory, as Canada has done since 1976. I’ve been wondering about this since May 3. Why not make relief wells a mandatory failsafe for all new wells, and lift the 6 month drilling moratorium while further safety measures are studied?

The Hayride dismisses my last post as “unhinged emotionalist blogging.”