Adam Smith Institute

View Original

BP: In crisis management mode

5401
bp-in-crisis-management-mode

Whilst BP’s Deep Horizon drama – currently being played out across US TV screens – has attracted massive environmental attention, the sober reality is that the lives of 11 oilmen were lost when the rig exploded on April 20th.

Moreover, this is not the first time that loss of life has gravely impacted BP’s US operations: at its Texas City refinery in 2005, 15 people were killed.

Whilst every effort is being made to limit the amount of oil spilling out of the ruptured well, the coastlines of many states - notably Louisiana and Western Florida – remain under threat. Crucially, after many weeks of round-the-clock effort, the Macondo well is still uncapped.

More worryingly for investors is that BP’s financial liabilities arising from this accident are also uncapped and this fact has exerted a pronounced influence on BP’s plunging share price. Since the rig exploded, BP’s shares have more than halved. Over £60 billion of shareholder value has been wiped out - some experts believe the share price has further to fall.

Lawyers are now piling in, ranging from those representing Anadarko – a junior partner in the Macondo drilling programme - to Louisiana shrimpers, who have lost their livelihoods.

The political mood, driven by the forthcoming mid-term elections, has become very ugly. It will be increasingly difficult for major oil companies to secure approval for deep-sea drilling off the US coast – and especially for BP. Few can accuse BP of ducking its responsibilities. But, for a proud company with a sterling record of success over decades, the current situation is both humbling and very poor for UK plc.

Amongst the favoured end-game options is a bid for BP by the cash-rich ExxonMobil, a child of the original Standard Oil combine that was built up by the legendary John D Rockefeller.

But for BP, where will it all end?