Slightly Sarcastic

Now that you had a little giggle it’s time to really understand BP and how this oil spill will affect the company and the people working for the company.  This in itself is enough to frustrate the most jaded and cynical among us, but, when you add to that what is happening to the environment and the livelihood of millions the negative effects are almost beyond comprehension.  I’m embarrassed to say that until recently I wasn’t aware of the magnitude of the overall devastation this will bring to so many, but the longer this has lasted and the more information that comes out I am finally realizing there are so many and so much that will be hurt by this completely preventable accident. How can we help?

Overview (from NY Times)

BP is a London-based oil giant that branded itself as “Beyond Petroleum,” an environmentally conscious energy company. But its image and its financial prospects have been decisively revised by the mammoth oil spill in the Gulf of Mexico caused by the April 2010 explosion of a drilling rig BP was leasing.

A leak in a pipe a mile deep has spewed out oil at the rate of what the company first said was 1,000 barrels a day and then 5,000 barrels a day from a site only 50 miles from the fragile Louisiana coast. The government’s current estimate of the spillage rate is up to 60,000 barrels a day.

The April 20 accident, which killed 11 workers, is the biggest oil spill in U.S. history, and the most costly. On June, BP said that its costs of responding to the spill had reached $2 billion. And regardless of the out-of-pocket costs, the long-term damage to the company’s reputation — and possibly, its future prospects for drilling in the Gulf of Mexico — is likely to be far higher, according to industry analysts.

BP is the third largest oil company in the world, after ExxonMobil and Royal Dutch Shell, with 80,000 employees worldwide as of December 2009, sales of $239 billion in 2009 and a market value – even after the recent losses – of more than $100 billion.

BP’s shares have lost almost half of their value since the leak began, and some analysts say the crisis could lead to a takeover or even bankruptcy of one of Britain’s most valuable and iconic companies. BP is a favorite of pension funds in Britain, and the stream of condemnations from Washington has stirred a protective backlash.

Shareholders were dealt another blow on June 16 when BP announced that it would suspend paying dividends for the rest of the year and establish a $20 billion fund to pay claims arising from the spill. While BP’s share price stabilized after that news, the developments did little to ease the anxiety of investors.

Perhaps the most threatening development for BP was the June 1 announcement by Attorney General Eric H. Holder Jr. that the Justice Department had begun investigations into possible criminal or civil charges related to the spill.

Tony Hayward, BP’s chief executive for the last three years, has insisted that his giant will weather this storm. BP is indeed a money machine: it turned a profit of nearly $17 billion in 2009. The accident, however, threatens to undermine all the efforts Mr. Hayward has made to burnish the tattered reputation of the company he took over.

On June 18, two days after Mr. Hayward angered lawmakers on Capitol Hill with his refusal to provide details during testimony about the spill, BP’s chairman, Carl-Henric Svanberg, said Mr. Hayward would not be as involved in daily operations in the Gulf of Mexico.

The following day, BP officials scrambled yet again to respond to another public relations challenge when Mr. Hayward spent the day off the coast of England watching his yacht compete in one of the world’s largest races.

Pressure Continues

In his Oval Office speech on June 15, President Obama told Americans that he planned to tell Mr. Svanberg “that he is to set aside whatever resources are required to compensate the workers and business owners who have been harmed as a result of his company’s recklessness.”

The following day, BP executives went to the White House and agreed to set up the $20 bilion fund to pay damage claims. Mr. Obama completed the deal in a private session with Mr. Svanberg, who set off an uproar when he told reporters that BP “cares about the small people.”

The escrow fund will be independently run by Kenneth Feinberg, the mediator who oversaw the 9/11 victims compensation fund.

Mr. Hayward and other BP executives have faced harsh questioning from Congress, and oil company executives speaking at a Congressional hearing publicly blamed BP for mishandling the well that caused the disaster.

The leaders of the House Committee on Energy and Commerce have cited five areas in which the company made decisions that “increased the danger of a catastrophic well,” including the choice for the design of the well, preparations for and tests of the cement job and assurances that the well was properly sealed on the top.

The committee leaders said that shortly before the blowout, BP engineers chose a faster, less expensive design for the final string of casing, which is the steel pipe lining the well. The design chosen, which used a so-called tapered string, cost about $7 million to $10 million less than another method. But the tapered string afforded less protection if the cementing job was poor and gas rose up the well, the congressmen wrote.

Representative Edward J. Markey, the chairman of the House Energy and Environment Subcommittee, released an internal BP document on June 20 showing that the company’s own analysis of damage to the well bore resulted in a worst-case estimate of 100,000 barrels of oil leaking into the Gulf of Mexico each day. Mr. Markey said the document provided a sharp contrast to BP’s initial claim that the leak was just 1,000 barrels a day.

Blame and Lawsuits

Mr. Hayward has blamed the rig’s owner and operator, Transocean, for the accident and the failure of the blowout preventer, a valve supposedly able to cut off the flow of oil. But he has said BP took responsibility for dealing with the immediate problem.

BP has said that drilling and operating relief wells to plug the runaway well might cost as much as $300 million, but those same wells will eventually be used to produce profitable oil.

After many failed efforts to staunch the oil flow, BP is collecting crude oil with two containment systems that the company hopes will help stem the thousands of barrels escaping from their damaged well.

Lawyers have already filed a flurry of lawsuits on behalf of commercial fishermen, shrimpers and injured workers against BP; Transocean; Cameron, the company that manufactured the blowout preventer; and other companies involved in the drilling process. Cleanup costs will be divided among BP, which has a 65 percent ownership of the field, and minority partners Anadarko and Mitsui.

As BP watches its bill rise quickly for the oil spill, including the fund it is setting aside for claims, it could find the tally growing much faster if the United States Department of Justice files criminal charges against the company.

Based on the latest estimates, for example, the daily civil fine for the escaping oil alone could be $280 million. But criminal penalties, if imposed, could cause the costs to balloon still further.

Beyond the financial costs, the multinational oil giant is facing a growing number of risks that could jeopardize its future. The company is almost certain to face tougher scrutiny from regulators. Opportunities to drill wells may be limited as governments and partners shy away from BP’s damaged reputation.

At the extreme, revenue could be sharply curtailed if the federal government found that the accident was caused by gross negligence and tried to revoke BP’s right to operate in the United States, which accounts for one-third of the company’s business.

BP’s History

Under Mr. Hayward’s predecessor, John Browne, BP chose the new motto of “Beyond Petroleum,” and an insignia of a blooming flower, an image meant to portray the company as one that was responsive to growing public concerns about climate change.

But BP, the nation’s biggest oil and gas producer, has a worse health, environment and safety record than many other major oil companies, according to RiskMetrics, a consulting group that assigns scores to companies based on their performance in various categories, including safety.

A 2005 explosion at a refinery in Texas City, Tex., killed 15 workers and injured hundreds more. The Occupational Safety and Health Administration fined BP a record $87 million for neglecting to correct safety violations.

Only a year later, a leaky BP oil pipeline in Alaska forced the shutdown of one of the nation’s biggest oil fields. BP was fined $20 million in criminal penalties after prosecutors said the company had neglected corroding pipelines. Soon after the incident, Mr. Browne quit amid tabloid headlines about his private life.

Mr. Hayward, a geologist who had been in charge of exploration and production, took over and promised to refocus the company and change the culture, emphasizing safety.

Mr. Hayward has expanded the company’s already aggressive exploratory efforts in the deep waters of the gulf. In 2009, the same platform that has now sunk to the sea floor drilled the deepest well in history, opening one of the largest new fields in the world.

Despite the accident, BP says it remains committed to its gulf drilling program, which contributes 11 percent of the company’s worldwide production.

The faltering cleanup effort came at a time when the company’s business was otherwise going well. Continuing the excellent performance of recent years, BP in April 2010 announced earnings of $5.6 billion for the first quarter, more than double the profit during the same quarter in 2009.  (Read More)