Thursday, July 15, 2010

BP: Breakthrough, Possibly

You get so used to bad news, good news is almost hard to believe. When BP made its announcement Wednesday afternoon, it was stunning in its suddenness: According to the company responsible for the oil spill in the Gulf of Mexico ... the oil spill in the Gulf of Mexico is over. For now.

The British oil conglomerate’s efforts at containment of the rupture at the Deepwater Horizon well site paid off Wednesday sometime around 3:25 p.m. ET, with installation of a new containment cap and the gradual adjustment of the closure valves surrounding the gushing wellhead. The cap now in place is a temporary one, meant to secure the hemorrhage of oil until the permanent cap can be put in place.

“All of us have been watching these horrible images for almost three months now,” said BP chief operating officer Doug Suttles on Wednesday. “But I have to stress that we have to manage our expectations.”

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Despite Suttles’ intelligent warning, it’s hard not to feel upbeat. We’d been led to think that the success or failure of this effort to stop the flow of crude oil gushing into the Gulf of Mexico would reveal, once and for all, whether anything would work. Ever. The apparent success at stopping the oil, at least for now, is the best environmental news this country’s had in the 87 days since the well exploded late on April 20.

Since then, the oil conglomerate’s efforts at containment of the rupture at the Deepwater Horizon well site have been a torturous tango of two steps forward, two steps back. Even in the wake of the progress the company previously said was being made in the four-stage process of capping the well, setbacks were never far off. On Sunday, to accommodate the new installation, the wellhead was open wide again, oil flowing into the Gulf again without letup — maybe as bad, for a while, as it was in the beginning.

BP’s also been looking for ways to contain its other relentless gusher: cash flow. The company, once among the top five global energy giants, has been hemorrhaging cash since shortly after the Deepwater Horizon exploded. The company’s set aside $20 billion to cover claims and costs, an amount that, mind-boggling as it is, may not cover the damage. Kenneth Feinberg, the administrator of that $20 billion cache, told The Wall Street Journal on Monday that there’s no way to know for sure until the oil stopped. “Once the oil stops, I believe we’ll be able to very quickly get a handle on the comprehensiveness of the claims population,” he said.

The British company has to hope its long decline on the world’s markets comes to an end that decisively. BP share prices rebounded nicely on Wednesday in expectation of a solution, closing up more than 7 percent. In recent weeks, BP share prices have similarly defied economic gravity.

The Journal again, from Monday:

“Despite the mounting cost of the spill, BP’s share price has risen about 20 percent over then past two weeks, in part due to progress on the relief well and expectations that Middle Eastern sovereign wealth funds might buy into the stock to prop up the oil major and help preserve its independence.”

The Journal noted that on Friday, BP shares closed at about $5 a share, climbing back from a 14-year low of $4.59. But that short-term bubble of a rally pales in significance with the overall trend for a stock that remains, uh, underwater:

BP closed on June 8 at $34.15 a share — at that time a new 52-week low.

Even as the Journal speculated that Middle Eastern investors may help save BP’s autonomy as a freestanding major, the thrust of that Monday story concerned something that suggests the strength of that autonomy may soon be diluted: BP is in discussions with Apache Corp., an independent oil and natural gas producer, about the possible sale of $10 billion in BP assets, possibly including BP’s expansive holdings in Alaska.

That’s just part of an overall cost-containment strategy that’s included everything from curbs on capital investments to a cancellation of stock dividends.

BP had everything riding on this latest containment effort — what may have been their last, best hope for ending a crisis of vast impact and scale. For the sake of the people in the Gulf dealing with this mess on a personal level, for the sake of its investors and its own integrity, BP better get it right this time. Never before has the outcome of an environmental catastrophe been such a forecast for an oil company’s future. Rarely has the word “containment” ever meant more.

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