Monday, May 24, 2010

BP losing Gulf of Mexico oil rig spill battle , Oil spill costs will snowball , BP-gate 34 Days and Obama Still Lets Oil Giant Run Show

BP losing Gulf of Mexico oil rig spill battle

  • AFP May 24, 2010 7:28PM
BRITISH energy group BP said on Monday it was capturing far less crude than expected from the huge Gulf of Mexico oil spill.

The spill has so far cost the company $US760 million ($914.45 million)

"The cost of the response to date amounts to about $760 million, including the cost of the spill response, containment, relief well drilling, grants to the Gulf states, claims paid and federal costs," BP said in a statement.

"It is too early to quantify other potential costs and liabilities associated with the incident."

The latest estimate of costs compared with previous guidance of $625 million.

The troubled company also revealed on Monday that it had retrieved between 1360-3000 barrels of oil per day last week from a tube inserted into the leak.

BP had estimated last Thursday that it was capturing 5000 barrels (954,500 litres) per day but revised this down to 2200 barrels (41,980 litres) over the weekend.

Today, the company said that it had now skimmed around 243,000 barrels (46,170,000 litres) of oily liquid from the surface of the water.

Even at the lowest estimates, more than six million gallons (22,500,000 litres) of crude have entered Gulf waters since the BP-operated Deepwater Horizon rig sank on April 22, two days after an explosion that claimed 11 workers' lives.

Independent experts have warned that the true size of the spill could be at least ten times higher.

Oil spill costs will snowball


May 22, 2010, 1:18AM

This time, the whole industry is paying the price.

Whatever went wrong on April 20, whatever caused the explosion aboard the Deepwater Horizon that killed 11 people, and regardless of whether blame lies with BP or one of its partners, all the companies drilling in the deep waters of the Gulf of Mexico will suffer.

Taxpayers will feel the pinch, too.

On May 6, Interior Secretary Ken Salazar announced a moratorium on new drilling permits that will last until at least next week.

That's likely to affect as many as 100 projects in the Gulf of Mexico, including as many as 40 in deep waters, according to a recent report by the Houston office of Wood Mackenzie, an international research firm.

The moratorium could delay as much as $3 billion in investment, according to the report, written by Julie Wilson, Wood Mackenzie's senior analyst for the Gulf of Mexico. Investment includes capital spending and jobs, the sorts of things our fragile economy needs. So far, platforms already producing in the Gulf are continuing to operate unabated.

If the moratorium is extended — which seems likely given that even preliminary investigations haven't been completed — the costs could rise. Wilson doesn't forecast a prolonged halt on drilling, but she estimated the impact of a six-month delay, which is more likely.

The old saying of time being money is especially true in deep-water drilling, where the processes are lengthy and the dollars are huge.

Service companies command as much as $500,000 a day for deep-water rigs. At those prices, they aren't likely to leave them sitting around for six months with nothing to do. So they may move them to other parts of the world. Once they're working on other jobs, they may not be able to return immediately when the government begins issuing permits again.

A six-month moratorium could reduce next year's deep-water production by about 80,000 barrels of oil a day, Wilson estimates. That's about 4 percent of the total Gulf production the firm forecasts for next year.

Production would continue to be affected through 2014, then rebound after that, the report said.

Royalties to suffer

But it's not just oil companies that would suffer. Wood Mackenzie predicts that government royalties from deep-water drilling — estimated to be $3.2  billion next year — would be reduced by as much as $150 million.

Likewise, the $8.8 billion in taxes oil companies are expected to pay in 2011 could be lowered by as much as $500 million, the report said.

New regulations, which are almost certain to arise from the accident, may increase drilling costs and undermine the economics of some proposed projects.

If expenses rise just 10 percent, seven of the 13 deep-water Gulf of Mexico fields that Wood Mackenzie lists as probable developments may no longer be viable, the firm said.

Those seven fields may hold as much as 1.8 billion barrels of oil and represent as much as $7.6 billion in taxes and royalties for the government.

Efforts in Congress to raise liability caps for companies responsible for spills will make deep-water projects more expensive for smaller producers, which could lead to more projects being concentrated in the hands of a few majors.

Insurance rates may rise

At the same time, insurance rates are likely to rise as a result, posing further hurdles to smaller companies.

The spill also may stymie plans to open new areas such as the eastern Gulf to new drilling.

Ironically, as of Friday BP said it was siphoning an average 2,000 barrels of oil a day from its broken well. At $70 a barrel, the well is now producing about $4.2 million worth of oil a month for BP.

As CEO Tony Hayward might say, that's just a drop in the ocean, but it may be the closest any company sees to new production revenue coming out of the deep-water Gulf for a while.

Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at His blog is at

BP-Gate: 34 Days and Obama Still Lets Oil Giant Run Show

VENICE, La/HOUSTON – The U.S. government threatened to remove BP from efforts to seal a blown-out oil well in the Gulf of Mexico if it doesn't do enough to stop the leak, though it acknowledged only the company and the oil industry have the know-how to halt the deepwater spill.

Interior Secretary Ken Salazar said on Sunday Washington is frustrated and angry that BP Plc missed "deadline after deadline" in its efforts to seal the well more than a month after an oil rig explosion triggered the disaster.

"I am angry and I am frustrated that BP has been unable to stop this oil from leaking and to stop the pollution from spreading. We are 33 days into this effort and deadline after deadline has been missed," Interior Secretary Ken Salazar said after visiting BP's U.S. headquarters in Houston.

"If we find they're not doing what they're supposed to be doing, we'll push them out of the way appropriately," he told reporters as the administration maintained its hard line.

Meanwhile, Louisiana Gov. Bobby Jindal says the state is not waiting for federal approval to begin building sand barriers to protect the coastline from the Gulf of Mexico oil spill, the Associated Press reported.

Jindal's defiant comments Sunday came as oil pushed at least 12 miles into the heart of Louisiana's marshes. Two major pelican rookeries are now awash in crude.

Jindal made his remarks on a boat at the edge of one of the pelican nesting grounds. He and officials from several coastal parishes say the berms would close the door on the oil still pouring from a deepwater gusher about 50 miles off the coast.

The U.S. Army Corps of Engineers is studying the environmental impacts from the emergency barrier proposal. The Corps didn't immediately respond to e-mails and telephone messages.

Salazar's strongly worded comments followed President Barack Obama's on Saturday, when he blamed the spill on "a breakdown of responsibility" at BP. The unfolding disaster has become a top priority on Obama's crowded domestic agenda.

The chief of the Coast Guard, Admiral Thad Allen, acknowledged on Sunday that the government is forced to rely on BP and the private oil sector to try to plug the gusher. At the same time, BP said the containment method it was attempting on the ocean floor was capturing much less of the leaking oil than three days ago.

Company engineers were readying other short-term solutions, the next one expected to start late on Tuesday. But BP Managing Director Bob Dudley said there was "no certainty" of success at the unprecedented depths at which they were being tried -- one mile down in the Gulf of Mexico.

More than a month after a rig explosion triggered what Obama has described as an environmental disaster and "BP's mess," oil is still spewing virtually unchecked from BP's ruptured Macondo seabed well.


At a time of mounting U.S. government and public criticism of the company and its executives over the catastrophic spill, Allen said he trusted BP Chief Executive Tony Hayward, who has made comments downplaying its size and environmental impact.

Sheets of heavy oil have washed ashore in Louisiana's fragile marshlands and lesser "oil debris" has also reached the coasts of Mississippi and Alabama in what is seen as an ecological and economic calamity for the U.S. Gulf Coast.

Given the lack of a solution so far and the doubts over BP, Allen was asked on CNN's "State of the Union" why the U.S. federal government did not completely take over the spill containment operation from the London-based firm.

"What makes this an unprecedented anomalous event is access to the discharge site is controlled by the technology that was used for the drilling, which is owned by the private sector," Allen said. "They have the eyes and ears that are down there. They are necessarily the modality by which this is going to get solved," he added.

Asked too about the apparent growing U.S. lack of confidence in BP CEO Hayward, Allen said: "I trust Tony Hayward. When I talk to him, I get an answer".

BP has deployed a long suction tube down to the larger of two leaks from the well, but a BP spokesman said on Sunday this captured only 1,360 barrels per day of oil over the 24 hours to midnight Saturday. The flow has been declining from the 5,000 barrels (210,000 gallons/795,000 liters) per day the company had said the tube was siphoning off three days ago.

BP engineers are now preparing a "top kill," pumping heavy fluids into the well to try to shut it off, an operation to begin late Tuesday or early Wednesday, Dudley told CNN.

Many scientists believe the Gulf spill has already eclipsed the 11 million gallons (41 million liters) spilled by the 1989 Exxon Valdez tanker accident in Alaska. They warn the spreading oil could increasingly be caught in a powerful ocean current that could take it to the Florida Keys, Cuba and the U.S. East Coast.


Churchgoers in Louisiana coastal parishes affected by the spill prayed for God's help. "You (God) can clear that oil up, because that oil was down there thousands of years before it came up in the Gulf. So you know what to do with it, dear God," retired oyster fisherman Herbert Guidry prayed in the New Mount Pilgrim Baptist Church in Houma.

Analysts say growing ecological and economic damage from the spill could become a political liability for Obama before November congressional elections.

While also promising to hold Washington accountable for proper oversight of the industry, Obama ramped up pressure on companies linked to the spill: BP, Halliburton and Transocean Ltd. He believed a "breakdown of responsibility" between them led to the disaster.

BP stocks have taken a beating in the markets in the month since the well blowout and rig explosion that killed 11 workers and touched off the spill. Its share price shed another 4 percent on Friday in London, extending recent sharp losses.

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