As Gulf spill spreads, blame game begins

By John W. Schoen
|  Tuesday, May 4, 2010  |  Updated 12:41 AM CDT
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As Gulf Spill Spreads, Blame Game Begins

AFP/Getty Images

When BP looks at the spreading oil slick in the Gulf of Mexico that now threatens the coasts of Louisiana, Mississippi and Florida, it's really seeing money floating away on the tide.

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When BP looks at the spreading oil slick in the Gulf of Mexico that now threatens flora, fauna and livelihoods along the coasts of Louisiana, Mississippi and Florida, it's really seeing money floating away on the tide.

That's why it may be trying to shift some of the blame for the massive undersea leak to Transocean, which was running the rig that exploded on April 20 and eventually sank, leaving one of the worst oil spills in history in its wake.

"It wasn't our accident, but we are absolutely responsible for the oil, for cleaning it up, and that's what we intend to do," BP Group CEO Tony Hayward told NBC's "TODAY" show.

"What has failed here is the ultimate safety device on a drilling rig," he said. "There are many barriers of protection that you have to go to before you get to this. It isn't designed to not fail."

Guy Cantwell, a Transocean spokesman, responded by reading a statement without elaborating. "We will await all the facts before drawing conclusions and we will not speculate," he said.

It's too early to tell the final costs for BP. The oil is still flowing from the well's three leaks and it is still heading for shore. Where it hits and how much damage it does will factor into the final costs for BP.

Meanwhile, the U.S. is pressing BP for specifics on how it will pay for the cleanup. Hayward is heading to Washington Monday to discuss that with Homeland Security Secretary Janet Napolitano and Interior Secretary Ken Salazar.

The British oil giant said Monday it will pay the expected multibillion-dollar cleanup cost and issued assurances that it will pay any reasonable claim for damages caused by the spill.

"BP takes responsibility for responding to the Deepwater Horizon oil spill,” the company said in a statement. “We will clean it up."

That clean-up process could take years. In the meantime, the local economy is already bracing for a major financial hit as the spill bears down on one of the world’s richest fishing grounds, the source of nearly a third of all seafood consumed in the U.S. Louisiana officials say that industry brings in some $3 billion a year.

The full financial impact on BP depends on several factors that won’t be known for some time. The biggest wildcard is the eventual size of the spill. BP is already spending about $6 million a day as it scrambles to contain the damage, but technology being employed to contain the flow of oil has not been used in waters as deep as the site of the leaking well. 

“As I understand, they have 1,000 people working round the clock, trying to get something organized in such a way, engineered in such a way that it's reliable and has integrity,” said John Hofmeister, former CEO of U.S. operations at Shell Oil who now heads Citizens for Affordable Energy. “There's no stone left being unturned here that I can tell.”

Those efforts include the deployment of a 40-foot steel structure to collect the leaking oil before it reaches the surface, an untested method of capturing oil flowing from a series of leaks along the platform wreckage on the seabed. BP is also using underwater robots to spray chemical dispersants to try to prevent the oil from reaching the surface. The success of those efforts could help contain the ultimate damage and cost of clean-up.

So far, it’s impossible to estimate the total price tag. Analysts at Merrill Lynch figure that a clean-up operation lastig six months cleanup effort could cost around $3 billion. 

Though BP is liable for the entire clean-up cost, it’s exposure to damage claims is capped at $75 million by an oil trust fund administered by the government. That fund, paid for by taxes on the oil industry, could pay up to $1 billion in claims.

Local fishermen are already bracing for the worst from the spill.

“Who can survive two months of this?” said John Tesvich, an oyster grower in Plaquemines Parish. “It's devastating by any measure. It's a catastrophe and it's still out there. We're just beginning to see the effects.”

Dozens of lawsuits have already been filed by commercial fishermen, charter boat operators and beachfront property owners from Texas to Florida.

The ultimate environmental damage could depend on the impact of wind and weather on the direction of the spill, already estimated to be as large as Puerto Rico. Scientists say the scope of the disaster also makes it difficult to estimate just how badly the already fragile ecosystem will be harmed over the long term

“As this area has lost wetlands over the last 100 years, it's lost almost 2,000 square miles worth of wetlands,” said Alexander Kolker, a coastal geologist and professor of coastal and wetlands science at Louisiana Universities Marine Consortium. “It's lost a lot of the productivity and it's lost a lot of the habitat that would allow these bird populations and other populations to recover.”

Some of the costs likely are to be passed on to consumers in the form of higher prices as the spill takes its toll on the seafood hauls from the Gulf. Federal officials shut down fishing for at least 10 days from the Mississippi River to the Florida Panhandle on Sunday because of the uncontrolled gusher spewing massive amounts of oil into the Gulf of Mexico.

It also remains to be seen how liability could be shared between BP, Transocean or Halliburton, which also has been named as a defendant in lawsuits because it had cemented the well's pipes about two days before the rig exploded. (Halliburton says its too soon to say what caused the spill.) Who's to blame won’t be known until the cause of the accident — and the failure of a critical shutoff valve — has been determined.

“Transocean does have insurance to cover the cost of the rig and other types of insurance including liability that should help cover them,” said Philip Weiss, senior energy analyst at Argus Research. “We don't know yet what the fault was and if that could change the equation.”

On Monday, two Congressmen asked officials from BP, Transocean and Halliburton to testify on the causes of the explosion and the failure of the valve designed to seal off the well.

The legal battle over damage claims could take years to resolve. After Exxon paid roughly $4 billion in damages resulting from the 1989 Valdez spill in Alaska, a jury in 1994 assessed $5 billion in punitive damages. In June, 2008, the Supreme Court reduced that amount to $500 million. 

If the spill can be contained soon, BP is in relatively good shape to weather the financial hit from the cost of the clean-up.

Last week, the company reported that rising oil prices sent first-quarter net profits soaring to $6 billion — more than double last year’s levels. As of the end of the quarter, the company had more than $12 billion in cash on its balance sheet.

BP shareholders, meanwhile, have already lost more than $175 million, after the company’s stock plunged on the news of the rig explosion and uncontrolled spill. Analysts say the long-term impact on the stock price, and the company’s reputation, will depend heavily on how well it responds to the clean-up and damage claims.

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