Ever since the Deepwater Horizon oil well blowout in late April, friends in my line of work and I have been debating whether British Petroleum is going to file a chapter 11 case to reorganize while dealing with the huge and still-to-be determined liabilities arising from the catastrophe.

As the spill spiraled out of control, my sense was that the question about a BP bankruptcy filing was not whether the company would file, but rather ìwhenî and ìwhere.î Just dealing with the tens of thousands of claims that will be asserted against BP in hundreds of courts across the U.S. cries out for centralized bankruptcy processing from a logistical standpoint, if nothing else.

But from a purely financial standpoint, the question of whether BP will need to file is a closer call. As Joe Schaefer outlines here, BP is a hugely profitable, hard-asset based company that is ñ at least on paper — capable of weathering this financial firestorm outside of bankruptcy protection, particularly if the relief well is successful and restores investor confidence in BPís capacity to deal with the liabilities. 

On the other hand, as Craig Pirrong reminds us (related NY Times article here), BPís financial situation is perilous and could deteriorate with Enronesque speed if the markets lose trust in BPís capacity to perform on its contractual obligations. Those CDS spreads are indeed ominous.

Stay tuned.