Energy Business

BP Oil Spill Costs Top $450 Million As Questions About The Dénouement Rise

Douglas A. McIntyre

BP plc (NYSE: BP) says the costs of cleaning up and attempting to cap the oil flow from what is left of the Deepwater Horizon have risen above $450 million.  According to The Wall Street Journal, “Jason Kenney, a U.K.-based analyst at ING, thinks BP’s total costs stemming from the spill, including environmental cleanup and litigation, could top $5.1 billion. Some analysts estimate that BP’s total costs could be more than twice that amount.” These numbers are based on the forecast that the leak a mile down in the ocean will be remedied at some time in the next few weeks. What if that does not happen?

The blame about the origin of the disaster are being shifted among BP, Transocean LTD (NYSE: RIG) and Halliburton (NYSE:HAL) . It seems that there were warnings of the trouble just a few hours before the explosion. There are accusations that a cement cap on the well was not properly placed or not placed in a timeframe that might have prevented the disaster.

Some analysts believe that BP’s financial damages could be partially mitigated by a federal law that caps part of the liability for some spills at $75 million. Members of Congress want that raise to $10 billion and applied retroactively to the BP incident.

BP has tried a series of solutions to stau=nching the flow of oil which is estimated to be 5,000 barrels a day. The spill will almost certainly come ashore in Louisiana and perhaps Texas, Alabama, and Florida.

BP says that if all else fails, it will drill a second well to relieve  the pressure on the one that has leaked. That process is estimated to take two to three months. But, what will happen if that last solution does not work either.

It is hard to imagine the northern Gulf of Mexico being covered by one huge oil slick. But, the  Amoco Cadiz spill put oil ashore on 200 miles of French shoreline near Brittany. The Gulf shoreline is many times that in length.

What the press and scientists have not contemplated, at least in public, is that the oil from the leak could go on for a year, and perhaps longer. If it does, there is no technology to clean a territory that is so vast as the one that would be created. And, it is beyond imagination to contemplate the effects. The northern Gulf could be closed to commerce in a fashion that is unimaginable.

The worst case “scenario”: as business school graduates often explain these things is the worst case of a manmade catastrophe in history. It is an example of the fact that what man does, he cannot always undo.

There may be no best case with the Deepwater Horizon spill. There may be no middle case. There may be only the case that has not been put on the table. At some point, the leak simply runs out of oil.

Douglas A. McIntyre