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Waste and Emissions»BP gets wake-up call and 32 billion dollar in spill charges

»Wednesday, July 28,2010

BP Plc's newly named chief executive on Tuesday called the Gulf oil spill a "wake-up call" for the entire industry as the company tallied up its losses and disclosed two U.S. investigations.

Bob Dudley, who will replace gaffe-prone Tony Hayward as chief executive on October 1, said safety would be among his highest priorities as the first American to lead BP tries to refurbish the British oil company's battered reputation.

Image repair may become even tougher after BP said it would offset the cost of the spill against its taxes, costing U.S. taxpayers almost $10 billion.

BP reported a second-quarter loss of $17 billion, including $32 billion in charges related to the oil spill, the largest in U.S. history. It also announced plans to sell $30 billion in assets over the next 18 months to help cover its liabilities.


The U.S. Securities and Exchange Commission and Department of Justice have launched "informal enquiries" into securities matters related to the spill, BP said.

A Senate probe into whether BP influenced the release of the Lockerbie bomber added yet another source of friction. Senator Robert Menendez postponed a hearing on the matter, set for Thursday, and accused BP and British officials of stonewalling.

More than 5 million barrels of oil have spilled into the Gulf of Mexico since the undersea leak began in late April, according to U.S. government estimates.

The spill, caused by an explosion that killed 11 people, has devastated communities and fragile ecosystems along the Gulf Coast and killed or injured countless sea creatures and coastal birds.

Private lawsuits have piled up. Attorneys hoping to lead the legal fight against BP are heading to the unlikely venue of Boise, Idaho, this week as a special judicial panel considers how to handle all the cases.

BP's U.S.-listed shares closed 1.7 percent lower on Tuesday. BP shares in London closed 2.6 percent lower. The company has lost about 40 percent of its market value since the explosion.

Ted Parrish, co-portfolio manager of the Henssler Equity Fund in Kennesaw, Georgia, said the sheer size of BP's quarterly loss had unsettled investors.

Wall Street "expected a big number, but to actually read the tape and see that number, it tends to shock people," he said.

Aside from the spill, BP's business is steaming ahead with underlying quarterly profits up 77 percent from the year before thanks to higher oil and gas prices and better refining margins.

The stock had gained on Monday after reports surfaced that Hayward would be ousted as CEO after a series of public relations blunders, including complaining he wanted his "life back" weeks after the start of the spill.

"I believe that it is not possible for the company to move on in the United States with me remaining as the face to BP," Hayward told reporters on a conference call. "So I think that for the good of BP, and particularly for the good of BP in the United States, it is right for me to ... step down."

BP's leaking well was capped two weeks ago after gushing up to 60,000 barrels per day into the Gulf, ruining fishing and tourism industries and polluting the shoreline with slimy goo.

BP could begin the final procedure to permanently plug the well late next week.

Two weeks after the well was capped, much of the oil that formed surface slicks has dispersed. Jane Lubchenco, head of the National Oceanic and Atmospheric Administration, said scientists were analyzing where it had gone.

"We know that a significant amount of the oil has dispersed and been biodegraded by naturally occurring bacteria," she told reporters, adding that while the amount hitting coastlines was decreasing, much more could still come ashore.

"We do know that over 600 miles of the Gulf coast shoreline have already been oiled and some remains on the surface, although the amount on the surface is less and less as our very aggressive efforts to contain it have been successful."


Chairman Carl-Henric Svanberg vowed BP would take a hard look at itself in the aftermath of the spill, saying it "will be a different company going forward."

The White House said President Barack Obama spoke with Svanberg on Monday but declined to say what was discussed.

Dudley was raised in Mississippi, a fact that seems to be working in his favor among some Gulf residents.

"I think people would be more comfortable with someone running BP (who) is from the Deep South," said Richard Angelico, a 66-year-old lifelong resident of Orleans Parish, Louisiana. "Hayward was inept at public relations and speaking to people in southern Louisiana."

Dudley said on ABC's "Good Morning America" he expected no more oil to flow into the Gulf but added: "We've got to really kill that well to be absolutely certain."

Some investors and analysts say BP's culture encourages greater risk-taking than rivals, contributing to higher returns. Critics have also blamed this culture for the explosion on the Deepwater Horizon rig.

Dudley told a conference call with reporters that safety "is going to be one of my highest priorities, in addition to the focus on making sure we meet our obligations around the Gulf Coast."

The spill looks likely to leave a legislative legacy. The Senate may begin debating a slimmed-down energy bill as early as Thursday, and holding BP accountable for cleaning up the Gulf will be a priority.

BP said it planned to sell assets worth up to $30 billion over the next 18 months to pay for its liabilities and create a leaner company with the potential for higher growth.

Investment bankers said the assets BP could sell include its stake in Alaska's huge Prudhoe Bay oil field and its interest in Pan American Energy in Argentina, as well as smaller assets in Vietnam, Pakistan and Colombia.

Industry executives said it was a good time to sell assets as relative stability in the oil price in the past nine months makes it easier for buyers and sellers to agree to deal terms.

BP agreed to a $7 billion sale of oil and gas fields to Apache Corp last week, which valued the assets at around $19.40 per barrel of oil equivalent. The rest of BP trades at an implied $7 per barrel, analysts at Morgan Stanley said.

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