2010-05-06 / Features

Oil Spill: Gulf Of Mexico Disaster Holds Big Liabilities For BP

By Mark Trumbull CHRISTIAN SCIENCE MONITOR

CHRISTIAN SCIENCE MONITOR

The massive Gulf of Mexico oil spill means large financial costs for BP – and potentially for other firms that had a role in failure of the deepwater rig.

Even as BP focuses on controlling the spill, investors are gauging liabilities that go well beyond the roughly $6 million per days the firm is spending on containment efforts – a number the firm says will rise. Over the past day, as the spill neared shore and as federal government assistance ramped up, shareholders revised dramatically upward their estimate of the spill’s costs.

Here’s a tally of the toll on stock prices for firms linked to the oil rig since the start of last week, just before news of the April 20 explosion began emerging:

BP. It’s the well’s leaseholder and operator, and its shares were down more than 10 percent by midday Friday, from where they stood at the start of last week. The company has lost more than $20 billion in market value since April 20 – a hit that reflects public-relations damage to the firm as well as cleanup costs and other legal damages investors expect it will pay.

Transocean. This is the owner of the Deepwater Horizon rig that BP was using. Transocean shares have fallen 15 percent in the same period.

Halliburton and Cameron International. These two firms are other contractors that did work on the rig. Their share prices have also fallen, but not as sharply as BP’s or Transocean’s. Cameron made the “blowout preventer” that was supposed to seal off the well in an accident.

For all these firms, the biggest one-day drop occurred last Thursday, as the magnitude of the environmental impacts became clearer. The stocks all regained a bit of ground by Friday morning, as industry analysts argued that Thursday’s plunge had overplayed the financial and legal costs facing the firms.

Still, it’s clear the potential costs are large. Although it will require investigation to know whether the liability is shared among several companies, BP is the firm most squarely in the spotlight.

“BP is going to be heavily exposed to enormous liability as a result of this accident,” says Tyson Slocum, an energy expert at the watchdog group Public Citizen in Washington.

A law passed after the 1989 Exxon Valdez accident, he says, makes BP responsible for the cleanup efforts now under way – including much of the tab for government efforts.

Eventual lawsuits could range from compensation sought by families of the 11 workers lost in the explosion to claims by the Gulf’s commercial fishing industry, Slocum adds. “You’re going to have a lot of people’s livelihoods affected, and they’re going to have to be compensated,” he says.

BP’s costs related to the spill could end up exceeding $3 billion, according to a Fitch Ratings analysis cited by the Reuters news agency.

“The ultimate financial impact on BP will depend on how the environmental and economic impact develops when the spill reaches land,” Fitch said in a statement. But BP, like other energy firms, carries insurance that should cushion the financial blow.

An Oil Spill Liability Trust Fund, established after the Exxon Valdez crash, could also help cover the spill’s costs, according to the Associated Press. The fund, which garners 8 cents from the industry for every barrel of oil produced or imported, has about $1.6 billion for covering damages to coastal residents and businesses.

The Valdez tanker spill eventually cost Exxon more than $4.3 billion in cleanup and lawsuit expenses, AP reported.

The current spill could become larger in scale, depending on the success of containment efforts and how long it takes to plug the leak. (BP has announced plans to drill a new well to secure the existing one, but that could take two to three months.)

“We are doing absolutely everything in our power to eliminate the source of the leak and contain the environmental impact of the spill,” BP chief executive Tony Hayward said in a Friday statement last Friday. The firm said it’s too early to put a price tag on its liabilities.

The accident is a big blow to a corporate image that Hayward has been trying to improve, industry analysts say. Some of its TV ads have emphasized green-energy activities, as the company casts its name in a new light: “beyond petroleum,” rather than the old British Petroleum.

Slocum calls the firm a “habitual rule violator.” He points to recent federal fines against BP for safety violations at an Ohio refinery, coming five years after a deadly accident at BP’s refinery in Texas City – which also resulted in large fines.

Return to top