BP is battling to find a successful solution to stem the oil flowing from a broken oil riser pipe after the explosion of the rig Deepwater Horizon on 20th April.
Image: US Coastguard |
The latest efforts to stem the flow, using a 'top kill' solution which pumps heavy mud and other debris at pressure into the pipe, failed on 29 May after three attempts. BP are now preparing a Lower Marine Riser Package (LMRP) option, which involves remote vehicles cutting the pipe close to the Blow Out Preventer (BOP) and placing a cap over the cut end to allow the majority of the leaking oil to be pumped to the surface and removed by ship.
The LMRP is not a permanent solution and success is not guaranteed due to the depths of the operation. In the meantime, progress on drilling two relief wells is progressing ahead of schedule, but they are still unlikely to be completed before the end of July at the earliest.
Investigations are ongoing into the cause of the disaster although it appears that BP and TransOcean (the operators) crew on the rig may have ignored warning signs some hours before the rig exploded. In an interim report to the US Government, BP's internal investigation team claimed that they had not reached a final conclusion as to the cause, but were focusing on seven key areas including the BOP, the casing system which seals the well bore and the execution of certain procedures. The explosion claimed the lives of 11 rig workers.
The subsequent oil spill has caused massive environmental damage, which was described by US President Barack Obama "the greatest environmental disaster of its kind in our history". Increasing amounts of oil are reaching the shores and wetlands of Louisiana and the Mississippi basin, an area rich in wildlife, as show by daily impact reports.
Local fishing and oyster industries have already be severely hit by the crisis with claims for compensation already running to $40m in economic injury claims to the local community. Although BP's legal liability is currently limited to $75m in the US, this is unlikely to remain the case. Some estimates are putting the compensation costs at between $10bn and $50bn.
Although some 13.5 million gallons of oil-water mix have been recovered, the main slick continues to spread across the Gulf of Mexico. Estimates suggest more than 20 million gallons (76 million litres) have now flowed into the Gulf, affecting more than 70 miles (110km) of Louisiana's coastline. Weather conditions are already pushing the slick towards Florida and the challenge now is to contain the spill as the hurricane season approaches.
According to the official timeline, by the end of May, more than 20,000 people, 1,700 vessels, almost 4 million feet of boom, and 950,000 gallons of dispersant had been deployed. After pressure from scientists, BP allowed pictures of from the seabed to be streamed via the internet.
US President Barack Obama continued to express "anger and frustration" at the failure to stem the flow of oil, as well as the relationship between the US Minerals Management Service (MMS) and the oil industry. President Obama tabled fast-track legislation to change the role of the Service, which until this year held responsibility for both the health and safety, and levying taxation for offshore oil exploration in the US. President Obama claimed the MMS had been "plagued by corruption for years" and Elizabeth Birnbaum resigned from her position as Head of the MMS in May.
President Obama also extended the moratorium on deepwater oil drilling permits by a further six months which could have a significant impact on the industry beyond the oil producers themselves.
BP's share price has plummeted since the disaster, which has so far cost the company an estimate $990m with the bill rising on a daily basis. Though given BP’s $7.7bn cash flow in the first quarter of 2010 and the expectation that the clear up costs will be spread over several years, some analysts have Buy recommendations on the stock.