Will ‘Bad Petroleum’ Perish In The Gulf? – Analysis


By Andrei Fedyashin

British Petroleum, dubbed Bad Petroleum after the April 20 accident at its Deepwater Horizon drilling rig in the Gulf of Mexico, is only now coming to see the dramatic consequences of the accident, its early failure to assess the scale of it and act to stop the oil spill, and its clumsy attempts to shift the blame onto contractors and equipment suppliers.

Hoping that the British Prime Minister might intervene on its behalf and help resolve problems with Washington caused by the oil spill, BP requested a meeting on June 3. However, a deputy to Charles Hendry, the Energy and Climate Change Minister, said: “Clearly Mr. Cameron is concerned about the situation, but it is primarily a matter for the company.”

BP’s blunder provoked a spike in anti-British sentiment in the United States. Americans, who have never felt much love for their arrogant “cousins,” jumped at the opportunity to condemn them for polluting their southern coast. People from New York to New Orleans are calling for a boycott of BP gasoline stations, some of which are now defaced with anti-BP graffiti. The very name of the largest British energy company, once the fourth largest in the world by income, across the ocean has become a four-letter word.

Its market value plummeted 13% on June 2, with the announcement that it would take at least another month to plug the spill, and it has fallen 36% since April 21, a market cap destruction of 44.4 billion pounds ($65.2 billion).

Established 101 years ago, BP employs over 80,000 people and has 22,500 filling stations around the world, but its current situation is very serious and could even deteriorate.

After U.S. President Barack Obama ordered a criminal investigation into the massive BP oil spill, the City of London and the “oil community” started talking about BP’s grim future, even though as of late 2009 the company had a turnover of $239.3 billion and a net income $16.6 billion.

A criminal probe into its activities in the United States means that lawsuits demanding compensation for damage allegedly done by BP to the country and its environment, companies and individuals, both actual and in terms of lost profit, could be filed against the firm.

U.S. environmental law stipulates a fine of $4,300 per barrel of oil spilled. BP is reportedly spilling between 12,000 and 19,000 barrels of oil daily into the Gulf of Mexico.

Over 30,000 lawsuits against BP filed by fishermen, hotel owners, tourism businesses, and so on could total 40 billion pounds, on top of any demands made by the families of the 11 workers who died in the explosion. In the United States, such lawsuits could vary between tens of millions and hundreds of millions of dollars.

BP has spent 1 billion pounds trying to stop the spill and clean up the surrounding area, which is enormous, 29,000 square miles, and so the company’s expenses could run into 12 billion pounds, analysts say.

So far, the tragedy has cut BP’s market value from $122 billion to $80 billion. The company will be unable to pay the planned dividends to its shareholders and will have to redistribute over 10 billion pounds of debt.

The situation is so bad that the business community in London and New York is talking about the possibility of splitting BP up into several companies or its takeover by its old rival, Royal Dutch Shell.

BP will most likely lose its exploration and development licenses in the United States where it earns 40% of its revenue, which almost constitutes a deathblow. U.S. Secretary of the Interior Ken Salazar said the oil spill has put BP survival at stake. “Its life is very much on the line here,” he said.

The Department of the Interior, which is responsible for national parks and environmental protection, will act as the key plaintiff in all environmental cases brought against BP.

Congress’ most radical members have called on Obama to ban BP’s onshore and offshore operations in the United States.

Robert Reich, Secretary of Labor in the Clinton administration and currently a professor at Berkeley, has called on the administration “to put BP under temporary receivership, which gives the government authority to take over BP’s operations in the Gulf of Mexico until the gusher is stopped,” the consequences of the oil spill are cleared, and damages under all lawsuits paid.

It has already been said there that BP has a record of negligence. In 2005, an explosion at its Texas refinery killed 15 people, and in 2006, tens of thousands of barrels spewed out of a hole in its Alaska pipeline.

Rumors are circulating in the City of London that BP’s days are numbered and that it will be split up or taken over by its main rival, Royal Dutch Shell. There is reason to believe this since BP held talks with its Anglo-Dutch rival twice, in 2004 and 2007.

Former BP head Lord Browne said a merger would have increased the new company’s net income by $9 billion a year, but the majority of the board were against the deal. This time they will have to show more flexibility.

Analysts at the investment bank Credit Suisse say that up to 72 million gallons may have flowed into the Gulf of Mexico after a BP rig exploded and sank on April 20, killing 11 workers. That would make the spill seven times worse than the Exxon Valdez spill in 1989.{jcomments on}

The opinions expressed in this article are the author’s and do not necessarily represent those of RIA Novosti.

Ria Novosti

RIA Novosti was Russia's leading news agency in terms of multimedia technologies, website audience reach and quoting by the Russian media.

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