BP manages to partially contain oil spill but not criticism

Battered and bruised, British oil giant British Petroleum says it has been able to place a containment cap on top of the Deepwater Horizon's failed blow-out preventer (BOP) yesterday stemming some oil flow.  After stringent criticism for failing to contain the gigantic undersea oil leak for 51 days, it now faces fresh criticism over BP chief Tony Hayward's plans to pay dividend to shareholders.

US Coast Guard Admiral Thad Allen confirmed that BP engineers were able to cut a portion of the pipe, a significant step towards plugging the leak that has been spilling between 21 million gallons and 46 million gallons of oil per day that has contaminated at least 225km of the southern US coastline, severly devastating marine and other life.

"The placement of the containment cap is another positive development in BP's most recent attempt to contain the leak; however, it will be some time before we can confirm that this method will work and to what extent it will mitigate the release of oil into the environment," Adm Allen, said in a statement.

"Even if successful, this is only a temporary and partial fix, and we must continue our aggressive response operations at the source, on the surface and along the gulf's precious coastline," he said.

Allen said that BP was able to collect some 1,000 barrels of crude a day through a pipe to a tanker a mile on the Gulf's surface. This operation will continue until the company completes two relief wells to plug the leak, which are expected to be finished by August.

An incensed US President Barack Obama, who made his third visit to the shores of Gulf of Mexico yesterday, reacted angrily to BP chief executive Tony Hayward's statement that BP would consider paying dividend to its shareholders.

After cancelling his planned trips to Indonesia and Australia yesterday amid criticism that the White House was not forcefully responding to the crisis, Presideent Obama warned the London-based oil giant that the US government would ensure that the company compensated those affected by the disaster.

He said, "I don't want somebody else bearing the costs of those risks that they took. I want to make sure that they're paying for it."
BP chairman, Carl-Henric Svanberg defended Hayward, saying, ''We will meet our obligations both as a responsible company and also as a necessary step to rebuilding trust in BP as a long-term member of the business communities in the US and around the world. This is in the interest of all our stakeholders.''

BP, which has already spent over a billion dollars so far on trying to cap and clean the spill, had made a profit of $16.58 billion last year and paid a dividend of 56 cents a share amounting to around $10 billion.

Hayward's insensitive statement came despite the company losing 15 per cent or $21 billion of its market value from $146 billion in a single day on 1 June after the US government launched a criminal and civil investigation into the uncontrollable oil spill. So far BP shareholders have lost 40 per cent or $74 billion fall in market value from $186 billion at the onset of the disaster. (See: As US launches criminal probe BP loses $21-bn in market cap)

But his statement on paying dividend was meant to reassure jittery investors after analysts put a total tab of $37 billion towards the financial cost of the spill, which is double the projected company's profit figure for 2010, risking dividend payouts.

Hayward said, "The financial consequences of this incident will undoubtedly be severe, but BP is a strong company and we have weathered many storms before."

But as the US federal prosecutors started investigating to find out whether BP, rig operator Transocean, or Halliburton, which did the cementing job on the oil well are at fault for the Deepwater Horizon rig blowing up on 20 April killing 11 people and spilling millions of gallons of oil into the sea.

Hayward acknowledged in an interview with the Financial Times on Thursday that the company was not prepared to tackle the blowout."What is undoubtedly true is that we did not have the tools you would want in your tool kit," he said.

Massachusetts Democratic Senator, Ed Markey immediately responded by saying that he would propose a legislation to create an oil SoS Fund, where oil companies would not have to pay royalties, but direct that money to the fund to upgrade the oil industry's technology in the event of a deepwater oil spill.

''From 'junk shots' to 'top hats,' this spill shows that BP and the oil industry paid more attention to drilling ultra-deep instead of creating ultra-safe technologies to prevent and respond to a crisis,'' Markey said in a statement.

Oil majors have earned billions of dollars from deepwater oil extraction, but have not invested in research for containment of spills in the event of a blowout.

The Gulf of Mexico spill has revealed that oil companies do not have a clue as to how to contain an oil spill that is often miles underwater.

Twelve of the top global oil companies have made a net profit of over $176 billion collectively last year, a time when oil prices had come down due to the global recession, which had sawed their bottom lines.

Figures for 2009 in billions of US $
Company Country Revenues Net Profit
ExxonMobil US 310.5 19.28
Royal Dutch Shell Netherlands/UK 278 12.5
Chevron US 273 23.9
British Petroleum UK 246.1 16.58
Total S A France 161.3 10.4
PetroChina China 160.8 15.1
ConocoPhillips US 136 4.8
CNPC China 110.50 13.2
Petrobras Brazil 104.9 16.6
Gazprom Russia 98.6 25.3
OAO Lukoil Russia 81.1 7.1
Statoil Norway 71.65 2.72
Total 2032.45 176.48

Table compiled by Ravi Kunder: domain-b from company figures till December 2009

Despite the massive profits, none of the oil companies have invested in systems, equipments, technical expertise to contain deepwater oil spills.