A New Player Emerges in Gulf Spill

Jim Brown
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Anadarko Petroleum has emerged as another deep pocket in trouble as the Gulf oil spill continues to expand. The final bill could run as much as $14 billion according to one source. For a company like APC that would be the kiss of death.

BP is still the responsible party for the oil spill cleanup but the finger pointing has already started. BP announced that Anadarko is a 25% partner in the Horizon well. With a market cap of only $30 billion a 25% bill for a $14 billion cleanup effort would be really painful. The last partner with 10% is Mitsui of Japan.

However, the finger pointing is escalating. BP ratcheted up the blame game over the weekend claiming the entire fault of the accident was due to a malfunctioning blow out preventer (BOP) manufactured by Cameron (CAM). The fact that the BOP was made by Cameron in 2001 is well known and that it malfunctioned is pretty common knowledge. The difference in the BP tone over the weekend was that they were officially blaming the BOP failure as the cause of the accident.

I am sure this is a sign of desperation at BP with the daily cost of spill cleanup escalating faster than the national debt. Originally they were using numbers like $500 million as the cost to kill the well and cleanup the slick. By Friday the numbers being discussed in the press had risen to $3 billion. By Sunday night the press and government agencies were up to $14 billion. You can bet that number is going to continue to rise since the well is still flowing and each day brings news of additional problems as the spill spreads all along the coast.

The government banned fishing in Louisiana, Alabama and upper Florida on Sunday. Analysts claim the cost to the gulf fishing industry could be $2.5 billion. The lost revenue to the Florida tourism industry could exceed $3 billion since the oil spill will be hitting Florida beaches just as the summer vacation season begins. Compensation to those impacted by the oil slick could be additional billions. The final cost of actually cleaning up the slick could be $7 billion according to an analyst at Bernstein.

With the bill rising so rapidly it is no wonder that BP is now pointing fingers at Cameron, Halliburton and even Transocean. The U.S. law stipulates that it is the field operator that bears the responsibility for spills so BP, APC and Mitsui are on the hook for a major bill. If BP can somehow assign the blame to CAM, HAL or RIG then they will have somebody to sue for some of the charges.

BP said on Sunday that BP was not to blame for the leak. "The rig was owned by Transocean. It was their people and their processes that were working. The well was BP's, but there is nothing we have seen in the well that could have been responsible for this accident." That was clearly an effort to distribute blame and clearly a completely different tone than the original "BP owned the well and we will be responsible for all costs" comments from BP a week ago.

The Exxon Valdez tanker spill in 1989 contaminated only a small section of Prince William Sound and that cost Exxon $3.5 billion in cleanup and damages. The Gulf spill has already exceeded that amount and according to BP the oil spill could continue up to three more months before the well is finally killed.

BP and Anadarko's best hope is for the three concrete and steel boxes they are planning on lowering over the leaking pipes. If those boxes and associated piping to the surface can stop the flow of oil into the gulf then maybe the financial bleeding will stop as well.

According to the Coast Guard the flow of oil out of the well could be much higher were it not for the kinks in the riser from the sinking of the rig.

Basically the riser is a hollow steel pipe up to 21-inches in diameter that connects the BOP on the ocean floor to the rig above. In the case of the Horizon this column of steel pipe was about 5,000 feet tall. The drill pipe, drill bit, casing, mud, concrete, etc all move up and down through this riser. Without the hollow riser the seawater would flow into the well and the well fluids including the drilling mud, oil and gas would flow unrestricted into the ocean.Link to SLB Riser Description

Think of the riser as a mile long hollow steel tube that connects the rig to the well. When the Horizon sank that 5,000 feet of steel riser, including any drill pipe inside the riser, collapsed to the sea floor under the weight of the rig crashing down on top of it. Now there is 5,000 feet of riser and pipe collapsed in a pile around the well. Since the riser was connected to the BOP and the wellhead the weight of collapsing steel column probably damaged the BOP and the wellhead. The Coast Guard says the bends in the collapsed riser are pinching off the flow of oil out of the well. Otherwise the flow of oil out of the well could be much larger.

Devon is looking very smart today. Devon started planning on getting rid of their deepwater assets after Hurricane Katrina. The reason was the high cost to drill plus the high risk of a deepwater well. Drilling onshore is looking a lot smarter today for companies that don't have the very deep pockets of Exxon, Conoco or BP. After this disaster has been cleaned up BP and APC may still have deep pockets but they will probably be empty.

Jim Brown

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