BP shares reflect US concern

Author : Paul Gay

15 June 2010

Shares in BP continue to take a pounding this week, falling more than 9% on Monday and seemingly in free fall as estimates of the size of the oil spill in the Mexican Gulf which followed an explosion and blowout at the company’s Maconda oil field on April 20th. The shares plunged on the news that US Democratic senators had called on the company to invest $20 billion immediately into a ring-fenced fund with an independent administrator, which would be used to fund the clean up.

BP’s board meanwhile held a teleconference to discuss whether to continue paying a dividend. Investors are expecting the company to offer some form of suspension of the dividend to Barack Obama when the President meets BP chairman meets Carl-Henric Svanberg and Tony Hayward, the company’s chief executive on Wednesday.

While visiting an emergency staging facility in Theodore, Alabama on Monday, President Obama said that the administration had a ‘constructive conversation’ with BP about paying claims. He also suggested that conversations about the mechanism to deal with legitimate claims had begun and was confident that more progress would have been made before he met BP’s chairman on Wednesday.

Meanwhile, Harry Reid, the Democratic leader in the Senate, said in a letter to chief executive Hayward that the creation of the $20 billion account would serve as an ‘act of good faith’ and would be an important first step in ensuring that BP would not delay or evade responsibility for damages.

On the cleanup front, BP plans to have in place by the end of the month the capacity to trap up to 53,000 barrels per day of oil leaking from its ruptured well. However, the company has warned that it could not guarantee to collect all the escaping oil and that the operation would create concerns over safety by working significantly beyond what is considered safe practice.

The Lower Marine Riser Package, which was installed on June 3^rd has collected some 127,000 barrels of oil and gas and continues to pipe it up to the drilling ship, Discoverer Enterprise, which is holding station on the surface above the damaged wellhead and the attached LMRP and is recovering oil at a rate of around 15,000 barrels/day. From mid-June, BP hopes to have in place a second vessel, the Q4000, which is an ultra-deepwater multi-service vessel which will receive up to 10,000 barrels/day of oil and gas siphoned from the failed blowout preventer and flared by the vessel at the surface.

A third system, a permanent riser also connected to the blowout preventer, will be in place by the end of June to capture a further 53,000 barrels a day. This flow will be collected by either of two vessels – the Helix Producer, a processing ship or the Toisa Pisces, a well testing vessel. The oil would then be transferred to tankers to be landed on the mainland.

In July, the plan is set to change with another Transocean vessel, the Clear Leader, joining the Maconda fleet. This vessel will be connected to a new design of containment cap fitted on top of the blow-out preventer.

The US Coast Guard estimates that 35,000 barrels/day is currently escaping and has called on BP to put in significant excess capacity above that to allow for technical failures on the ships or other equipment used in the operation. With its three pronged recovery plan, BP should be collecting around 78,000 barrels/day by the middle of July. With the new containment cap, capacity will be increased further.