To Many Observers BP Seemed Doomed as Macondo Incident Worsened
On that day a year ago, forty-five miles out at sea in the Gulf of Mexico, BP’s contract drilling rig working at its Macondo development well caught fire, exploded and sank. Then it began spewing crude from the ocean floor at a rate which eventually reached 4.9 million barrels of oil released into the Gulf of Mexico.
The explosion and fire took the lives of eleven workers on Transocean’s contract drilling rig, Deepwater Horizon. The subsequent oil disgorging, which lasted 85 days, became the worst environmental disaster in US history. By comparison, in terms of oil spilled, it was 19 times worse than the Exxon Valdez event.
Experts Remain Uncertain about the Ultimate Damages from America's Worst Natural Disaster
On April 20, 2011, one year later, scientists remain uncertain of the eventual impact of the catastrophe, both economically and environmentally, not to mention culturally. Wildlife and wildlife preserves along the Gulf coast from Mississippi to Florida are still being cleaned up and assessed for damages sustained.
Proprietors of commercial establishments along the popular shores to tourists are looking for capital to rebuild or decontaminate facilities; fishermen are looking for financing to replace oil-ruined boats; and naturalists mourn the stench and mucky beaches in many places. The federal government and BP are the major sources of the slow-moving process to restore the Gulf Coast to its prior ambience, or something like it.
New Federal Offshore Leasing Regulations Have Reduced 2011 Production
Nor has the oil industry escaped repercussions. Within a month of the occurrence, President Obama placed a 10-month suspension on US offshore drilling, to give Secretary of the Interior Ken Salazar time to rethink the process lease operators must go through in procuring drilling permits in the Gulf of Mexico.
Consequently, production there will be 375,000 barrels of oil per day less in 2011, according to the Wall Street Journal of April 20, 2011.
Many thought the disaster meant the end of business as an independent enterprise for BP, for federal penalties and escalating personal damage lawsuits await. At one point, the stock market reduced the company’s market cap by $50 billion, over $16 per share.
The federal government has not finalized penalties to be assessed, but the company shows $41 billion in costs for the Gulf Coast cleanup and victim restitution for 2010, in its financial statements. Those are only estimates, however.
Surging Fuel Prices Are Helping BP Recover Financially from Macondo Disaster
Ironically, gasoline prices have risen 33% since the mega oil spill, a run-up that has aided BP in recovering financially from the accident. Higher gasoline pump prices, as well as rising prices of industrial petroleum products and jet fuel, have jacked up refining margins to 11% and enabled the British petroleum giant to reduce losses to $(1.19) per share in 2010.
The upturn in gasoline prices and the huge company gasoline refinery throughput of 2,426 thousand barrels of crude feedstock per day should continue to favorably impact 2012 results. This expectation depends on demand rising in the heavy driving season ahead, as it typically does.
Investors Are Eagerly Awaiting BP Operating Results in 2011 to Evaluate Its Stock Value
In 2007 through 2009, the company earned $6.47, $6.69, and $5.25, respectively, per fully-diluted share. Anxious to elevate BP to its pre-Macondo standing among its Big Oil peers, the stock market awaits announcement of 2011 first quarter earnings due April 27, with baited breath.
At $46 per share, the company has retraced much of the ground lost during the Macondo debacle, but there is little doubt its leadership role in the Gulf Coast has been tarnished. Investors wonder how much, and want to evaluate in 2011 how long the disaster will penalize the wounded giant’s operating and financial results.
Howard Bryan Bonham - Howard Bryan Bonham is a former daily newspaper editor and award-winning financial writer.
