BP told to put aside $20bn for Gulf clean up

C&I Issue 12, 2010

BP could be facing a bill for $34bn for the clean up of the Gulf of Mexico and compensating workers for loss of earnings. Such a massive liability could leave the company open to takeover or even bankruptcy.

In a letter to BP, a group of 54 Democratic Senators called on BP to put aside $20bn into a ring-fenced account to cover the clean up costs of the leak. BP faces another $14bn in civil penalties.

‘Potential fines are estimated near £30bn, which would effectively halve current market value. But this doesn’t include further clean up costs and legal costs,’ says Gregory Lemaire-Smith, associate energy analyst at Datamonitor. ‘So far these costs would not be sufficient to bankrupt BP so long as it can stop the flow of oil soon.’ However, Lemaire-Smith adds that, if the disaster runs on, complications, such as the loss of drilling licences in other countries, could push BP to the brink.

A separate letter from the US Senate’s committee on energy and commerce to BP’s ceo Tony Hayward raises a number of ‘serious questions’ pertaining to Deepwater Horizon, which a BP drilling engineer called a ‘nightmare well’. The Senate committee lists five questionable decisions, which it claims ultimately resulted in the failure of the well. These were poor well design with few barriers to gas flow, not using enough components to hold the pipeline centrally within the well and failing to run a test on the integrity of the concrete in the well. The other two problems highlighted were foregoing a safety test to check the condition of the mud around the well and failure to deploy a lockdown sleeve, which would have prevented the well’s seal from being blown out.

 All this comes as Hayward faces a grilling in the US House of Representatives on the 17 June 2010 on the events that led up to the explosion that killed 11 people and sank the Deepwater Horizon rig.

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