http://blogs.wsj.com/source/2010/06/07/bp-captures-more-oil-spill-consequences-grow/
June 7, 2010, 9:42 AM GMT
By James Herron and Jeffrey Sparshott
BP has reported some success in capturing oil leaking from the Macondo well in the Gulf of Mexico, but the cost continues to escalate and political pressure mounts on all sides for the embattled company.
CONTAINMENT
BP said Monday that on June 5 the cap it has attached to the top of the leaking well captured 10,500 barrels of oil out of an estimated 12,000 to 19,000 barrels a day gushing from the wellhead. Analysts hailed this as a long overdue success for the embattled company.
“At last BP is able to show some progress on tackling the leak and this will put it in a less damaged position in tackling the political pressure which still remains a threat,” said NCB Stockbrokers analyst Peter Hutton, who upgraded BP to hold from reduce on the news.
CLEANUP
More than 2,600 vessels, 2.2 million feet of containment boom and 2.4 million feet of sorbent boom have been deployed in the response effort. Approximately 368,000 barrels of oily liquid have been skimmed from the surface.
The containment success was providing little comfort to people already affected by oil contamination. In the resort of Gulf Shores, Ala., local officials lamented a flood of vacation cancellations and what they see as a second-rate clean-up operation since tar balls began hitting the white sands over the weekend.
Louisiana Governor Bobby Jindal continued political pressure for the construction of 128 miles of sand barrier islands to protect delicate marshes. The Army Corps of Engineers has approved a scaled down version of the plan and BP said it has set aside $360 million to pay for it.
Mississippi Governor Haley Barbour struck a different note, telling Fox News Sunday that the media’s tendency to lump all of the Gulf coastlines and beaches together as victims of the spill was hurting the state’s tourism industry. “We have had virtually no oil,” he said.
COST AND CONSEQUENCES
The cost of cleanup and the efforts to cap the leaking well has now reached $1.25 billion, BP said Monday. [Read BP’s latest statement here.]
Estimates of the ultimate bill keep rising as the likelihood of significant compensation payouts and civil or criminal penalties increases. “Our model assumes $12 billion impact on operating costs from the clean-up and weaker ability to progress on cost savings,” said Hutton. “But the majority of assumed litigation costs are beyond 2011,” he added.
BP reassured investors Friday that it has the financial strength to meet this cost, but, “the political backdrop makes it difficult for BP to maintain its existing level of dividend even if the balance sheet does,” said Hutton
Congressional Democrats plan an aggressive legislative response to the oil disaster bringing much stricter regulations. Senate Majority Leader Harry Reid said he wants a “comprehensive clean-energy bill” on the Senate floor by July, aimed at pushing the economy to “kick the oil habit.”
Other initiatives likely to be considered are raising the cap on oil-spill liability to $10 billion, improvements in oil-worker safety, a toughening of environmental protections for offshore drilling and a further revamping of the Minerals Management Service. Republicans plan to counter with legislation targeting BP rather than the oil industry as a whole.
BP was one of the few companies to see its shares rise in London Monday morning, following the containment success. However, it remains at less than two-thirds its price before the disaster and analysts remain cautious about whether the company is a good investment.
WHAT’S NEXT?
BP plans to increase the efficiency of the containment cap and the volume of oil it is capturing by using hoses attached to the blowout preventer manifold to transport some of the leaking oil through a separate pipeline to the surface. This method is expected to be deployed mid-June, the company said.
BP plans by early July to have attached a more flexible hose linking the surface vessel storing the oil to the top of the pipeline coming from the cap on the well. This will allow, “greatest flexibility for operations during a hurricane,” BP said. The impact a hurricane could have on the containment operation has become a major concern.
BP also plans a new advertising campaign aimed at salvaging its image in the U.S. The $50 million campaign features Chief Executive Tony Hayward, who has come under severe and personal criticism in the U.S., apologizing and promising to pay the full bill for the spill. U.S. President Barack Obama has already criticized BP for spending on advertising while oil continues to leak.
Special thanks to Richard Charter