Will the British giant collapse?

Last July, the U.S. House of Representatives voted to end the federal moratorium on deepwater drilling for oil companies, imposing new federal safety requirements. The proposal to end the moratorium was an amendment to a pending energy bill. The moratorium will not end unless the Senate also votes to terminate it and President Barack Obama signs the legislation into law. The fate of the proposal in the Senate is uncertain. The Obama administration imposed the six-month moratorium on exploratory drilling in waters more than 500 feet deep in response to the BP oil spill. The moratorium runs through the end of November

Democratic Majority Leader Harry Reid is expected to try, and fall short of having the necessary votes to bring an energy proposal to the floor of the Senate. Failure to pass this legislation before lawmakers leave Washington for their summer break will not only represent a win for the oil industry generally, but it will also diminish the likelihood of the Senate picking up on a controversial measure passed by the House of Representatives late July that would have serious consequences for BP.

The so-called Miller Amendment, passed late on July 30, 2010, as part of an energy bill, would not provide BP any future drilling permits in the U.S due to the company’s poor safety record over the past seven years. The proposal caused considerable terror within BP and has prompted a lobbying effort against the measure by the British embassy in Washington, which has argued that the measure is protectionist.

The Senate has not formally considered any measure that matches the Miller amendment, making it unlikely to become law, But once proposed legislation is open for debate on the floor of the Senate, any single lawmaker can put forward an amendment that could get included in the final hour. The legislation under consideration would remove the $75 million oil spill liability cap. It would also create new incentives for electronic cars and promoting natural gas production.

For now, says one prominent energy lobbyist who asked not to be named, BP is trying to ensure that lawmakers steer clear of any proposal that resembles the measure passed in the House. They are relying on an argument that has gained resonance with many Senate Democrats: namely that the British oil company must remain a going concern if it is to pay off billions of dollars in liabilities, potential legal claims and a possible government settlement.

Lawmakers return to Washington in mid-September and could raise the issue again, especially if they believe they can gain points with an electorate that wants to see BP punished for the huge oil spill in the Gulf. For veteran Washington lobbyists and lawmakers, it is more than difficult to predict what might unfold between now and the autumn, when Congress will be gearing up for the midterm election season. Democrats are not unified on the issue and there are doubts that any single Republican would support Mr. Reid’s efforts to pass an energy proposal.  Republicans in the Senate have been accused by their Democratic counterparts of blocking energy legislation to protect BP.

They could seek to free themselves from the “pro-BP” label and propose a tough measure to please voters.

BP’s world’s worst oil spill
The BP oil spill in the Gulf of Mexico is the world’s biggest accidental oil leak, with government scientists estimating that 4,9 million barrels of oil gushed from the Macondo well before it was capped in July 2010. The amount is far higher than the estimated 3,3million barrels spilled into the Bay of Campeche by the Mexican Rig in 1979, which had previously been estimated to be the world’s biggest leak. Federal science and engineering teams estimated that 53,000 barrels of oil a day were flowing out of the well before BP capped it in mid July.

The latest estimates could be used to determine the size of the penalties BP faces under the Clean Water Act, which calls for fines of $1,100 a barrel or $4,300 a barrel if the government finds that gross negligence led to the spill. At 4,9 million barrels that means the total fine could be as high as $5,4 billion, or if gross negligence led to the spill, $21 billion.
The tests that took place in August involved pumping heavy drilling mud into the well at low speed and pressure, as an attempt finally seal the leak. BP said it expected to pump about 2,000 barrels of mud. It will then decide whether to cement the well immediately, from the top, or to wait until after the relief well is drilled and then cement it from the bottom.

BP was also confident that the well had “integrity” and was no longer throwing oil into the waters of the Gulf.
Generally, work continues to identify and collect oil on the surface of the sea and to collect and clean up oil that has reached shore. Since July 15, no new oil has flowed into the Gulf of Mexico from the MC252 well. As a result, BP, as part of Unified Command, has conducted over flights and other reconnaissance and has found less swimmable quantities of oil over the last several days. To date, skimming operations have recovered a total of over 826,000 barrels of oily liquid and a total of 411 controlled burns have been carried out.

Gradual Flow of Oil Spill Bills
Senate Majority Leader Harry Reid has introduced a bill that tightens restrictions on offshore drilling and promotes energy efficiency, electric cars and the use of natural gas in trucks.

The House bill includes a provision that would modify a six-month moratorium on deepwater drilling, so that some drilling permits could be approved on a rig-by-rig basis if the Interior Department determines a rig meets new safety requirements. The drilling moratorium imposed by Interior Secretary Ken Salazar would remain in effect, and he would retain power over whether to approve a permit. The bill also would remove the current $75 million cap on economic damages to be paid by oil companies after major spills and increases to $300 million the financial responsibility offshore operators must demonstrate in most cases. And it would create new “conservation” fees on oil and natural gas extracted from land or water controlled by the federal government. At this point, the only good news for BP is that it has more than $250 billion in total assets to help pay for its spill bill.

BP sells its assets
The unlucky BP was compelled to get rid of some assets to confront the forthcoming headache of compensations which may be unrealistic, at the same time will break its backbone, BP started by selling some properties that cope with the current financial position, but no one can predict the next steps:

  • Apache known for purchasing mature oil and gas properties seized BP properties in Alberta and British Columbia, as well as the Permian Basin of West Texas and New Mexico and Egypt’s Western Desert. All told, the Houston oil and gas company will add estimated proved reserves of 385 million barrels of oil equivalent to its portfolio. Shares of Apache fell 2,6% to $86 in after-market trades. BP shares rose 1,3% to  $35,65. BP will get $7 billion in cash for its cleanup effort in the Gulf of Mexico. The U.K. oil giant laid out plans in July to raise cash as it set up a $20 billion victim fund for the worst spill in U.S. history. Apache seizes rare opportunity to acquire legacy positions from a major oil company, with oil and gas production in place as well as prospects for new exploration.  Apache would add value to the properties “for decades to come.” It was a good game from government expected regulations to pounce upon BP. The deal expects to close in the third quarter.
  • BP has also agreed to sell its oil and gas exploration, production and transportation business in Colombia to a consortium of Ecopetrol, Colombia’s national oil company (51%), and Talisman of Canada (49%). The two companies will pay BP a total of $1,9 billion in cash; the sale is expected to be completed by the end of the year.  The sale of the Colombian business is part of BP’s plan, announced on 27 July, to liquidate up to $30 billion of assets over the next 18 months, and the company has also recently informed governments in Pakistan and Vietnam that it intends to divest its upstream interests in those countries. Under the terms of the agreement, Ecopetrol and Talisman are due to pay BP cash deposit of $1,25 billion with the balance of payment due on completion of the sale.  BPXC has assets including interests in five producing fields in four association contracts, four separate pipeline interests and two offshore exploration blocks. Net proved reserves total 60 million barrels of oil equivalent and BPXC’s net production is approx 25,000 barrels of oil equivalent a day.
  • Upstream, BPXC has interests in, and operates, the Tauramena (BP interest 31 %), Rio Chitamena (31 %), Recetor (50%) and Piedemonte (5. %) association contracts, which are due to expire between 2016 and 2020. Producing fields on the licensees include the Cusiana oil and gas field, and the Pauto and Florena fields. BPXC also has a 40,56% interest and operator of the RC4 and RC5 exploration blocks offshore Cartagena, awarded in 2007. This agreement does not affect BP’s Castrol lubricants business and other downstream oil activities in Colombia.

BP faces more pressure
In another sign of pressure in the wake of the oil-well blowout that has become the largest disaster in the U.S. history, the British company said it will implement a “significant reduction” in its 2010 capital spending budget of $20 billion and increase planned liquidation to approx, $10 Billion over the next 12 months. BP said the “Independent Claims Facility” would be managed by Kenneth Feinberg, who ran the fund for the Sept. 11 terror attack victims. BP will initially make payments of $3 billion in the third quarter and $2 billion in the fourth quarter. After that a payment of $1,25 billion will be made per quarter until a total of $20 billion is being paid in, reported by the Company. The fund does not represent a cap on BP liabilities, but will be available to satisfy legitimate claims, in my personal opinion; BP will pay more after spill stop and many parties. Civilian Societies will open fire to claim for damages that will make BP suffer for many years. BP also reiterated recent statements that the bulk of its business continues to perform well, with cash flows from operations expected to exceed $30 billion in 2010 at current prices.

By Mostafa Mabrouk, Vice Chairman Assistant for Economic Affairs, Ganope


Welcome! Login in to your account

Remember me Lost your password?

Don't have account. Register

Lost Password