A Missed Opportunity For Oil Giants

Todd Shriber
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In advance of Tuesday's Capitol Hill dog and pony show, oil executives from Exxon Mobil, Chevron and ConocoPhillips, the three largest U.S. oil companies, and Royal Dutch Shell, now the largest European oil company by market value, were attempting to distance themselves from their embattled rival, BP. This was a predictable approach. After all, BP has been accurately painted as a villain for its role in the Gulf of Mexico oil spill, now the largest in U.S. history.

Who could blame a company like Exxon or Chevron for wanting to run away from even the faintest comparisons that could link those companies to BP (BP)? Under normal circumstances, the oil industry is just like any other sector: Its constituents are rivals with each other and that is just the normal course of business.

However, the Gulf spill has resulted in BP's negligence hampering the ability of its rivals to drill deepwater wells and therefore make more money in the Gulf of Mexico. Exxon, Chevron and Conoco all have Gulf exposure. In addition, the government's moratorium on deepwater drilling will delay Shell's (RDS-A) efforts to start new projects in Alaska. So it is fair to say that BP did not have a lot of friends left in the industry.

It also would have been reasonable to expect that when BP's rivals headed to the Hill, they would have done a better job of distinguishing themselves from BP. The Gulf spill has been ongoing for eight weeks, now, giving the U.S. majors and Shell ample opportunity to come up with plans in anticipation of these congressional hearings that would have reassured politicians that BP's inability to handle this spill is a company-specific issue, not an industry-wide pandemic.

Opportunity lost. Yes, it should be noted that Exxon (XOM) CEO Rex Tillerson did a fine job of articulating what his company would have done differently to prevent a BP-esque disaster from occurring and those were important points to be made, but with the spill nearing its 60th day on the front page and leading off the nightly news, politicians and the general public wanted to be wowed by how BP's rivals would cleanup a spill of this magnitude.

This where the other oil majors lost a golden opportunity. BP has not come remotely close to stemming the flow of oil from the Macondo well. Containment domes, robots used to cut pipe and every other attempt to halt the flow of leaking oil has essentially been a failure. To make matters worse, the estimates of how much oil is spilling into the Gulf everyday are growing. And to make things even worse than that, it appears that Exxon, Chevron (CVX), Conoco (COP) and Shell have similar spill cleanup plans.

Basically, there is an industry template for these types of events, but in the wake of the BP spill, that template needs to be scuttled and oil majors need to head back to the drawing board to devise more effective cleanup plans. If that objective cannot be met, the perception will remain that offshore drilling is too risky because the industry does not know how to cleanup its own messes. That means more lost opportunities for the industry in the form of longer moratoriums and more lost jobs. Unappealing scenarios for anyone that wants to see the U.S. economy expand.