Published: Tuesday June 1, 2010
President Barack Obama was Tuesday huddling with a White House panel investigating the Gulf of Mexico oil spill, as BP shares plummeted on news it had failed once again to cap the leak.
Obama was to make a statement after the talks, having moved last week to clamp down on the oil industry by freezing deepwater oil drilling and exploration in most US waters.
As key elections approach in November, he is battling the nation's worst ever spill and environmental crisis amid warnings the oil could continue spewing into the Gulf until August.
The official start of the hurricane season on Tuesday has only bleakened the outlook for residents in Louisiana and the neighboring states of Alabama and Mississippi, with a widespread fishing ban in place and tourists numbers down.
The White House's top energy advisor, Carol Browner, said work had now started on BP's latest bid to contain the spill by trimming a broken riser pipe then lowering a dome over it.
"They are beginning this process," White House adviser Carol Browner told CNN television early Tuesday.
A tube would then siphon most of the oil to a ship on the surface.
In cutting the riser pipe, however, BP is running the risk of unleashing an even larger torrent of oil.
"The goal is now to contain the oil," Browner said after the so-called "top kill" attempt failed at the weekend when the British energy giant tried to plug the leak by pumping heavy drilling mud into the well.
"Within hours we'll begin the series of cuts and the robots take sheers and a diamond cut saw will put a clean cut across the top of the well," Bob Dudley, the company's managing director, said on CNN.
If it works, BP engineers plan to lower another dome to capture a second flow of oil through a valve known as the blowout preventer, Dudley said.
"By the end of the month, we are engineering a completely separate system that will make it more storm proof with a free standing riser that would allow for quick disconnects if needed," he said.
But two deep relief wells being drilled by BP into the seabed to plug the leak permanently, will not be ready until August.
BP is under huge pressure to stop the spill, with an estimated 12,000 to 19,00 barrels of crude belching daily into Gulf waters since an April 20 explosion ripped through the Deepwater Horizon rig and sank it two days later.
Eleven workers were killed, and more than 20 million gallons of oil is estimated to have flooded into the Gulf.
BP has tried -- and failed -- several times in the past six weeks to cap the leak through various methods, triggering mounting anger in the Gulf as oil washes up on the southern coast, threatening rare animal and plant life.
US officials said so far 29 dead dolphins and 227 sea turtles had been collected in the southern states, which is above average for the time of year -- with at least one of each species having visible signs of oil.
"The deaths of dolphins and sea turtles are particularly tragic, because we know we are only seeing the tip of the iceberg with those that have been washed up onshore and tested," said Doug Inkley, senior scientist at the National Wildlife Federation.
"Dolphins are unique among wildlife because of their intelligence and the trust they put into people, often wanting to play in the wake of our boats. Obviously, we broke that trust," he added in a statement.
Browner warned again Tuesday that US officials are bracing for a worst-case scenario, amid warnings that the 2010 storm season will be more than active than normal with up to 14 hurricanes.
"We hoped for the best but we are preparing for the worst, working with the governors and communities to give them what they need to protect the shorelines and restore the shorelines when impacted."
BP's shares plummeted on the London stock market when it opened Tuesday after a long holiday weekend.
The share price nosedived 15.49 percent to 418.15 pence as BP also admitted the oil spill price tag now stood at 990 million dollars (811 million euros).
Obama was meeting in the Oval Office with handpicked commission leaders Bob Graham, a former Florida governor and ex-US senator, and with William Reilly, a former head of the Environmental Protection Agency.
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BP at Risk as Share Plunge Fuels Takeover Speculation
By Brian Swint and Stanley Reed
June 2 (Bloomberg) -- BP Plc’s failure to stop an oil leak from spewing millions of gallons of crude into the Gulf of Mexico may leave the biggest oil and gas producer in the U.S. in a fight to stay independent.
BP shares have plunged 36 percent since the Deepwater Horizon drilling rig leased by the company exploded on April 20, wiping more than 40 billion pounds ($58 billion) from the company’s value. That may make BP cheap enough to attract acquisition interest, investors said.
“The market value of BP has eroded substantially, so it could be a takeover target,” said Dirk Hoozemans, who helps manage about $4.5 billion at Robeco Group in Rotterdam, which sold its BP holding last year. What matters now is how forceful BP’s Chief Executive Officer Tony Hayward is in tackling the disaster and the aftermath, Hoozemans said.
With a permanent end to the leak depending on so-called relief wells that are some two months from completion, Hayward faces costs that may reach $22 billion, or more than last year’s profit, according to ING Wholesale Banking. The company also faces a criminal and civil investigation in the U.S. into the disaster.
“There is a 10 percent to 20 percent chance of BP being taken over,” saidGudmund Halle Isfeldt, an Oslo-based analyst at DnB NOR ASA, in an e-mailed note this week. “The only real candidate, in size and with similar operations globally, would be Royal Dutch Shell.”
Shares Fall
BP shares fell for a third day in London today, dropping as much as 3.5 percent and trading at 421.5 pence at 12:09 p.m.
Hayward will promise to maintain the dividend at 56 cents a share this week, the Times of London said today without citing anyone. That would put the ratio of payments to the share price at 9.6 percent, the highest yield among 18 of BP’s peers, according to Bloomberg data.
BP spokeswoman Sheila Williams declined to comment for this story. A spokesman for Royal Dutch Shell Plc in The Hague declined to comment.
In addition to being the largest oil and gas producer in the U.S., BP is the biggest operator in the Gulf of Mexico, where it holds more than 500 leases and pumps 450,000 barrels of oil a day. The company plans 10 projects in the Gulf during the next five years, more than other regions of the world, according to a BP presentation.
Some analysts estimate the potential for criminal investigation and civil lawsuits facing BP could be as high as $40 billion, which would justify the roughly $50 billion loss in market value, said Gordon Kwan, the Hong Kong-based head of regional energy research at Mirae Asset Securities Ltd.
President Obama
The U.S. Justice Department is investigating whether any criminal or civil laws were violated in the spill, Attorney General Eric Holder said yesterday.
Holder announced the investigation at a news conference in New Orleans, the same day President Barack Obama called the spill “the greatest environmental disaster of its kind in our history.”
Obama last week extended a moratorium on deep water drilling permits by six months. He has dropped plans to open waters off the coast of Virginia to drilling, canceled a lease sale in the Gulf and suspended the permit process for Shell’s planned wells off Arctic Alaska. He said new safety rules will be imposed on drilling.
BP has spent $990 million on trying to stop the gusher on the seabed about a mile below the surface and on cleaning up oil from the Gulf. Payments to landowners, hoteliers and fisherman claiming losses from the spill will cause the bill to rise.
‘The Tab Is Rising’
“The tab is rising every day,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. “BP could be facing a huge liability in compensation, damages and other charges.”
The cost for the Exxon Valdez tanker disaster in 1989, previously the worst U.S. oil spill, resulting from clean-up costs, fines and settlements has reached at least $4.3 billion so far.
BP spokesman Scott Dean said in an e-mail May 19 that the London-based energy company is self-insured against losses and damage claims resulting from the spill.
Credit default swaps for BP leapt 52 basis points to a record high of 220 basis points during early trading in London, according to CMA DataVision prices.
In a worst-case scenario, where hurricanes, technological difficulties, or unforeseen problems thwart BP’s attempts to contain the oil and seal the well, the leak could spout almost 4 million barrels of crude into the Gulf of Mexico by Christmas, petroleum geologists and industry analysts said.
Decades of Damage?
The oil could suffocate fish and other marine life, damage shorelines along the Gulf Coast, sweeping around to Florida’s Atlantic Coast, and harm the economies that are dependent upon fishing and marine life, according to marine scientists. Toxic crude from the spill could remain trapped in layers of ocean water for decades, scientists say.
BP pumped 3.95 million barrels of oil and gas a day last year, making it the world’s largest producer outside government- owned oil companies. Exxon Mobil, its closest rival, pumped 3.93 million barrels a day.
BP’s market value, which surpassed Shell at the start of the year, has fallen behind Petroleos Brasileiro SA, Chevron Corp., and Russia’s OAO Gazprom. Paris-based Total SA pumped 2.28 million barrels last year and is priced about $9 billion less than BP on the stock market.
No Buyers
“We’re getting into share price territory where analysts speculate about takeover possibilities, because the loss of market value is much greater than the estimated ‘worst case’ costs,” said Ivor Pether, who helps manage $9.2 billion at Royal London Asset Management, including BP shares. “But there aren’t any buyers at this point because the near-term uncertainty is so high.”
Hayward reduced BP’s net debt ratio to 19 percent in the first quarter from 23 percent a year earlier, giving him greater ability to meet cleanup costs and related liabilities. The company has an AA credit rating from Standard & Poor’s and made a record $6 billion profit in the first quarter on $73 billion of revenue.
“The liability could be tens of billions of dollars, but I do think BP has the balance sheet capacity to be able to handle a hit like that,” said Jason Gammel, an analyst at Macquarie Securities USA Inc. in New York. “It’s too early to say it’s a takeover candidate because no one wants to own an unquantifiable liability.”
Pipe Fitting
BP is now trying to contain the spill by fitting a pipe over the leak to bring the oil to a drillship on the surface. The operation may temporarily increase the flow of oil into the Gulf before a cap can seal the pipe, BP said yesterday.
Hayward has promised to clean up “every drop” of oil in the Gulf and on the shoreline from the well that has gushed up to 19,000 barrels of oil a day, according to a government estimate. BP is drilling two relief wells to intercept the damaged well and permanently plug it, a process that won’t be completed until August.
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