As the Deepwater Horizon spill approached its second month, Gulf Coast residents worried about surviving the onslaught of oil, and investors worried whether BP itself could survive the spill's hit to the company's bottom line.
On June 21, the London-based company said it already had spent $2 billion on spill response, claims, drilling of a relief well to stop the spill and other expenses. Separately, the company agreed to put $20 billion into an independently administered fund to compensate people and businesses hurt by the spill, plus spend another $100 million to help workers idled by the disaster.
Financial analysts have estimated BP's bill for the disaster could easily run into the tens of billions of dollars. In early June a Credit Suisse analyst estimated a $37 billion tab, and Goldman Sachs said a “reasonable worst-case scenario” could push it as high as $70 billion.
BP chief executive Tony Hayward faced tough questioning from lawmakers on June 17; he said the disaster “never should have happened, and I am deeply sorry that it did.” (Getty Images/Alex Wong)
BP chief executive Tony Hayward describes the global oil enterprise as “strong,” and indeed it earned more than $100 billion in profits over the past five years. But it has seen its fortunes plummet since the April 20 blowout.
In mid-June BP's stock price fell to its lowest point in more than seven years, off 46 percent from the date of the blowout. Meanwhile, Fitch Ratings, a major bond-rating agency, slashed the company's credit rating to BBB, a mere two rungs above junk status.
Ultimately, no one knows how much the spill will cost BP, but already some are speculating that the company could be forced to seek bankruptcy protection before it's all over. That's a prospect the company rejects. “We categorically deny those rumors,” a BP spokesman told Bloomberg Business Week.
But “the bankruptcy option is clearly there,” John Olson, managing partner of Houston Energy Partners, a hedge fund unit of the Houston-based Sanders Morris Harris Group, told Bloomberg. Olson added: “BP's board and CEO can say they've ruled it out, but you can't rule it out, realistically.”
As the oil has gushed, company executives have tried to calm nervous investors. Speaking on June 4, Hayward said the company had “considerable firepower” to deal with what he said would be “severe” costs from the spill. Chairman Carl-Henric Svanberg said the oil giant would “meet our obligations both as a responsible company and also as a necessary step to rebuilding trust in BP” within the global business world.
But BP has a long road ahead in winning that trust. Published reports in recent weeks have cast the company as a recurring offender of safety and environmental laws, and U.S. officials have been relentless in their criticism of the company. As Britain's Guardian newspaper put it, President Obama “has ensured that BP is Public Enemy No. 1 in the United States.”
Public Citizen, a consumer advocacy group, cast BP as having “the worst safety and environmental record of any oil company operating in America.” The company has pleaded guilty to two criminal charges and paid more than $730 million in fines and settlements in the past few years for what Public Citizen said were “environmental crimes, willful neglect of worker safety rules and penalties for manipulating energy markets.”
Penalties outlined by the group included fines totaling nearly $109 million for “willful negligence” leading to the deaths of 15 workers and injuries to some 170 others in a 2005 refinery explosion in Texas City, Texas, near Houston. Also on the list was a 2007 payment of $303 million to settle allegations that BP manipulated the U.S. propane market.
The Center for Public Integrity, a journalistic watchdog group in Washington, found that BP far exceeded any other oil company in the number of citations. Between June 2007 and February 2010, BP received 829 citations classified by the Occupational Safety and Health Administration as “willful” or “egregious willful,” Public Integrity said. The total for other refineries was fewer than two dozen.
— Thomas J. Billitteri