List of Names Grows Longer

Jim Brown
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News that the gulf spill was five times bigger than initially thought suddenly captured investor's attention and the list of companies involved in the well at the time of the blowout mushroomed past BP and RIG.

BP was crushed for another 8.3% loss to $52 on news that the slick was widening dramatically and the amount of oil escaping was more like 5,000 bpd than the initial 1,000 bpd estimate. The Coast Guard found another leak using the robot subs and that caused them to raise the estimates.

Even though Transocean had no responsibility for the leak and cleanup the shares of RIG were knocked for a 7.5% loss to $78. Transocean owned the rig but BP was the responsible party. RIG is being unfairly targeted by sellers because their rig was insured for $550 million. Their loss in the entire episode should be limited to the deductible and some incidental charges. The loss of life by the workers was also insured.

The new players hitting the news today include Cameron International (CAM) and Halliburton (HAL). Cameron is in the news because they manufactured the blowout preventer in use on the well. In the case of a blowout the blowout preventer is supposed to slam shut and cutting completely through the drill pipe in order to seal the well. For some reason that did not happen and after a week of trying to manually close it using robotic subs there has been no success. I am not sure what liability Cameron might have in this case since the BOP was manufactured in 2001. In theory they are supposed to last up to 30 years. Shares of CAM lost -13% on Thursday and about 18% since their name first appeared in print on Tuesday.

Halliburton (HAL) has suddenly zoomed into focus because they were responsible for cementing the well. That was the operation in progress when the blowout occurred. According to RIG, Halliburton had just finished cementing the 18,000-foot well just before the explosion. Regulators have previously identified the cementing process as a leading cause of blowouts. If the cement cracks or fails to harden the gas can blow through the cement and escape the well.

A 2007 study by the Minerals Management Service (MMS) found that cementing was a factor in 18 of 39 blowouts in the Gulf over the last 14 years. That was the single largest factor even ahead of equipment failure and pipe failure.

Halliburton would have gotten approval from BP on the type of cement they planned to use and the quantity before the task was started. While this is a checks and balances type of approval the Halliburton manager on site would have been the determining factor in the decision. This is why drillers hire Halliburton is for their expertise in various down hole maintenance functions.

Halliburton was also the cementer on a well that blew out last August in the Timor Sea off Australia. The rig also caught fire and leaked tens of thousands of barrels over the ten weeks it took to shut down the well. U.S. officials told the Australian commission looking into the blowout that a poor cement job was likely to have been the cause.

The shares of all the companies involved fell sharply after President Obama spoke about the growing oil spill in a televised briefing. He has started a wide-ranging investigation into the cause and you can bet somebody will eventually be hung out to dry. Obama said he was sending "SWAT teams" to the gulf to inspect every offshore rig. Since SWAT stands for Special Weapons and Tactics" I don't really think he is sending armed policeman to the rigs but the comments did tank shares of everyone involved plus quite a few that were not involved.

The spill is expected to reach the Louisiana shores on Friday. Shrimpers in Louisiana and Alabama have filed class action lawsuits against BP, RIG, HAL and CAM in anticipation of economic losses as the oil spreads into the shrimping grounds. The gulf accounts for 70% of shrimp of the nationwide catch. This just happens to be the start of the shrimp season as they move from the estuaries and out to sea. The spill could not have come at a worse time for shrimpers.

There is also a concern that the growing spill could impact the shipping lanes and especially the incoming oil imports. The oil is flammable and tankers are not going to want to risk offloading their cargos in the middle of a sea of oil that could ignite with any spark.

There is also talk of shutting down quite a few oil production platforms and rigs in order to less the potential for fire that could aggravate the situation with another platform ablaze.

Worries over the delivery of oil and the potential for slowing production pushed oil prices back to $85.50.

Jim Brown

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