Since the explosion of a rig that killed 11 workers million s of litters of oil have spilled into the Mexican gulf leading to environmental and economic catastrophes along the U.S coast bordering the Gulf. The explosion occurred on 20th April 2010 lead to a fire on the Transocean Ltd’s drilling rig Deepwater Horizon which is licensed to BP. the rig is part of the BP Macondo project and lies 68 Km to the southwest of Venice, Louisiana. it occupies about 1,525 meters of water and 4 km beneath the sea bead. The losses caused by the disaster are numerous. First was the los of the $560 million deepwater horizon rig which sank leadi9ng to formation of an 8 km oil slick. The fishing industry suffered a blow as over 37% of fishing grounds within the American federal waters were placed under fishing restrictions (Reuters, 2010a). the spill has had negative effects on the American economy and the financial health of the oil giant. this essay is going to discus this effects and the recent events brought about by the effects
Effects on the oil giant
The BP share started experiencing a deep due to the event surrounding the disaster. The company was certainly unable to recover for as quickly as possible form the disaster and the clean up of the oil spilled is still proving to be an up hill task. On June 1, 2010 the BP stocks went down by 17% in the London stock exchange. This reduced a total of 23% from its market value. The deep of the prices on the London stock market was a result of the news that new attempts to stop the spillage of oil had failed. pressure was further placed on the BP company to pay its workers that had been layer off following the disaster certainly this is like adding salt to old wound given that the company is also required to compensate other business for the inconveniences caused by the disaster and any loss of property the people along the gulf suffered (Reuters, 2010b).
The companies experienced a value increase of 6.4% after the British e prime minister pledged to support it. However, this rise was too little to mend the damage that had already been done. The disaster had already gnawed away the worth of the company form 120 billion pounds in April to 70 billion pounds. Since the disaster struck, the price of the BP stock has almost halved. The average decline recorded by the stock since 20th April has been 11.3%. The collapse of its market cap has been 49.4% which is equivalent to $92.7 billion. The company’s stocks have lost a value of about 23% per share adding up to $71.4 billion (Jackson, 2010).
At the height of pressure from them American authorities BP agreed to created a $20 billion fund to compensate all the losses resulting from the disaster. The fund was to be available to pay for all damage claims made as a result of the disaster. The setting up of the fund was also accompanied by suspension of dividend payments to its share holders in order to pay a value of $100 million dollars to its employees who had been suspended.
BP also came under fire for employing dangerous method as well as ineffective methods in the stopping of the oil spill with the aim of minimizing costs. According to critics the company’s’ management has failed to properly manage the disaster by failing to institute proper mechanisms that could stop the oil spill before it could cause severe damage. at the center of criticism was the BPs chief executive for the poor handling of the disaster this became even worse after the executive of by and those of the Transocean Ltd appeared in public exchanging the blame instead of acting to reduce the loses. Certainly the BP company was careless as it co owner of the disaster struck well, Anadarko Petroleum observed in June 18. According to Anadarko petroleum, BP was reckless, negligent of out rightly exhibiting willful misconduct which negatively impacted on the duties played by the owners of the oil well.
By June 20 it was estimated that close to 100, 000 barrels of oil were being lost daily and the total cost if the spill hit $3.12 billion by June 5. The clean up of this spill would certainly be another economic cost that BP will have to bare in addition to compensating losses, paying laid of workers, and decline of the value of its stocks on the sock market in London. it is also worth noting that all the drilling activities with the gulf had been stopped by the American authorities and therefore the company could not economical drill the oil. This certainly reduced the production of the company thus limiting it revenue (Mail Online, 2010).
Restoration of the Mexican gulf and American coast along the gull will certainly be expensive both to the American government and BP which is likely to take full responsibility of all the expenses incurred (Womack, 2010). The company introduced a supertanker that had been converted to form a super skimmer to remove the oil from the water surface the skimmer can remove up to 500, 000 barrels of oil from the surface in a day. On the 12 of July BP fixed a “capping stack” –a better seal than any other that had been place on the well previously. This reduced the gushing out of the oil from the well and the company sated shutting valves after approval by the American authorities. The company reported a success in stopping the spillage of oil on the 15 of the same month and started conducting tests determining whether the well would remain interact or would start leaking again. the stoppage of the leakage also added to the economic loss suffered by the company. the whole process consumed over $3.95 from the beginning till the realization of success. certainly BP would have achieved success earlier that this had the company not insisted of employing poor, dangerous and cheap methods as it did at the beginning of disaster with a sole aim of minimizing costs.
After the stopping the spillage of the oil the company was now face with the new responsibility that that had been placed on its shoulders by the events surrounding the disaster. as the United stated President Barrack Obama had stated “But make no mistake: we will fight this spill with everything we've got for as long it takes. We will make BP pay for the damage their company has caused.” the company was now expected to meet the costs of the aftermath of its misdemeanor. as stated earlier this is yet another economic cost that will certainly impact severely on the worth of the company. to met the high costs of compensation the company had to part with some of its property. to these effects the company announce on 20th July 27, 2010 that it was selling some of it property to meet the costs. According to the company it had reached an agreement with Apache Corp. the later would the formers property worth $7 billion shillings to facilitated rising of money toward the meeting of the restoration and cleanup costs (Andriotis, 2010).
Effects on the American economy
The efforts by the oil giant to take the entire cost of the oils spillage against the tax bill I certainly a relief to the American tax payers. The act relieves that tax payers about $10 billion. As such BP took upon it self to foot the bill which stands at $32.2 billion which includes the cost of cleaning up the oil spillage, the cost of cupping the well and the payment of the government fines. However, it is worth noting that the impact of the company’s efforts will only be $22.2 billion due to the $10 billion tax credit given to the country. Still the American tax payer will have to pay a large proportion of this credit. The company also expects it tax bill in Britain to be reduced. it is however worth noting that BP could easily spark political abhorrence and anger from the public for the deduction especially in terms of the fines the company is expected to pay.
The American economy will certainly suffer directly and as a result of the ripple effects. Currently the number of tourism activities hare reportedly been reduced in the areas around the gulf thus reducing denying the economy a substantial income. The fishing industry in the region is also counting its loses and the potential of the fishing grounds may also be hampered for some time.
On July 27, 2010 the oil giants CEO Tony Howard decide to quit his job in three months time (October 2010) after having bearing all the blame for the disaster (Wray, 2010). Howard is to be exiled in Russia’s Westland with a pension of 600, 000 pounds every year. On the very day BP reported a loss of 11 billion pound into red for the first time in 18 years. This is the largest loss ever recorded in any corporation in Britain in the recent years. The $32.2 billion that the company set aside to meet all the expenses resulting from the oil spills was far too much that the company expected and could handle. The values of these expenses finally lead to a loss of $17 billion as compared to $3.1 billion in profits that was made the previous year. The company announced that it would replace the outgoing boss with Bob Dudley as well as parting with more of its assets worth $30 dollars through selling them to raise money.
The company has also to deal with environmentalists who seam to have taken a different turn and even become wild. Protestors allied to the green peace stormed and destroyed about 50 BP service stations in London as they demanded the Bob Dudley successor to Howard should push for creation and adoption of renewable sources of energy. The company has so far managed to recover about 825 000barrels of oil. the oil spilt had had cover 836 miles of the American cost bordering the gulf along the shores of Mississippi, Alabama, Louisiana and Florida. The clean up so far has involved a about 6,390 vessels among them skimmers, barges, tugs and recovery ships. in addition to the 825,000 barrels of liquid oil that were recovered by these vessels about 261,400 barrels were removed form the gulf by controlled burning that involved a total of 409 controlled burns. through out the five American states five states more that 40, 000 people were involved in the clean up processes.
in sum, the disaster has cost BP dearly despite having made a profit of $6 billion in the first quarter, the company has realized a loss of $19 billion dollars in the second quarter. The company has also had t o lay of its workers, pay heavy fines; dispose property to pay for the clean up of the spilt oil and compensate those who suffered loses as a result of the spill. The company has also had to do away with it boss ant it is currently facing stringent legal proceeding that have been set forth by the disaster the spill created. The company is subject to investigation by the US Department of Justice to find out whether the U.S. criminal and civil laws were violated. more investigations may also be done an American presidential commission to examine what led to the incident and joint investigation between the Bureau of Ocean Energy Management, Regulation and Enforcement and the U. S. Cost Guard. also in accompanying this investigations is an inquiry by the Securities Exchange Commission and several other investigations by the US state and federal agencies such as the Congress and the US Chemical Safety and Hazard Investigation Board. The company father faces over 300 private law suits by it subsidiary companies. However, it is worth noting that it is not that the oil giant did not feel the los alone but spread the loss to other parties such as fishing corporations, and American tax payers.