Oil spill will lay siege on US for years, says admiral

BP'S BATTLE to clean up the oil spilled in the America's worst environmental disaster "will take years", despite a successful capping operation that is now preventing almost 500,000 gallons of crude flowing into the Gulf of Mexico.

• Protesters make their views known while marching down Pensacola Beach in Florida, where oil globs have been washed up. Picture: Getty

Admiral Thad Allen of the US Coast Guard warned the oil giant faces a gruelling clean-up operation in the wake of the leak, which has now flowed for seven weeks and continues to devastate around 120 miles of the southern coast of the US.

Expanding a warning that the containment operation could last until the autumn, the admiral said that "dealing with the oil spill on the surface will take a couple of months" but that the process of getting oil out of marshlands and other habitats along the coast "will be years".

The oil giant announced yesterday it was to send a further ship to the Gulf of Mexico to increase the rate at which it could gather the oil, which is now being funnelled via a wellhead cap installed by robot submarines at the weekend.

Admiral Allen, who is charged with overseeing the US government's response to the crisis, reported that the cap was now preventing up to 462,000 gallons (1.7 million litres) of oil a day from spewing into the Gulf.

But he warned that, until relief wells are drilled to ease the pressure of the leak, the oil would still escape.

US Federal authorities estimate the cracked pipe is leaking anywhere between 500,000 gallons (190,000 litres) and one million gallons (3.8 million litres) of oil each day, restricting fishing, harming the tourist trade and killing wildlife.

Speaking yesterday at the White House, where he met with president Obama to discuss the crisis, the admiral said the clean-up challenge in the gulf now involved dealing with "hundreds of thousands" of individual patches of oil scattered across a vast ocean area.

As he emerged from the meeting, Mr Obama declared that the spill, "would be contained".

"It may take some time and it's going to take a whole lot of effort.

"But the one thing I'm absolutely confident about is that, as we have before, we will get through this crisis," he said.

Mr Obama, who has come under pressure in the US for the rate of his governments response to the crisis added: "The economic impact of this disaster is going to be substantial and it is going to be ongoing."

Mr Obama also said his government was pushing BP to be prepared for a hurricane to make sure its efforts to contain the spill were not disrupted by stormy weather.

Meanwhile, White House press secretary, Robert Gibbs confirmed the penalties eventually levelled against BP would be based on how much oil had flowed into the sea.

His warning came as BP confirmed the cost of the clean-up and containment operation had now reached more than $1.6 billion dollars (1.1 billion).

This figure includes grants made to Gulf states, compensation claims paid to those affected by the disaster and $360 million dollars (249 million) to construct six sand beams to protect Louisiana's wetlands from the spreading oil.

Last week, analysts warned that the financial impact of the spill and the risk of enormous punitive fines from US courts, could "break" the company, damaging dividends to swathes of the UK's pension market and cutting billions from the UK's corporation tax take.

Yesterday, BP stock rallied briefly during trading, buoyed by news that the capping operation had managed to funnel some of the spewing oil.

However, later in the day, Goldman Sachs cut its rating on the firm and warned BP could be forced to suspend dividend payments for two quarters to help fund the clean up.

That stalled early gains made to the share price and the stock finished 0.7 per cent down at 552.50.

Tony Shephard, an analyst at Charles Stanley said: "Although the slump in BP's market value presents an opportunity for some long-term value funds, the share price will struggle to gain real traction until the leak is permanently sealed, in our opinion.

"Besides a lack of clarity on the total costs of the … oil well incident, a key uncertainty is US political pressure."

So what does the future hold for BP?

BREAK-UP

THE oil giant has already suffered a massive drop in its share price, and any further problems with the containment operation could see it fall further.

The share price will also be susceptible to a drop if, as expected, the Obama administration – keen to find someone to blame – imposes restrictions on the firm's operations in the Gulf of Mexico.

If that decision comes as BP faces massive punitive fines for the conduct of the drilling operation and the clear-up efforts, scores of institutional investors could reconsider holding the stock and the firm could become vulnerable to takeover.

Rather than assume control of the entire BP operation, any suitors – likely to include Royal Dutch Shell – may identify the most profitable areas of the firm, and sell off the operations elsewhere to smaller operators, or rivals without a presence in a particular area.

There is also likely to be interest in the BP operation from China, where access to oil is in high demand. Despite the likely opposition to any Chinese deal, PetroChina would be attracted to the access BP's operations will give it to international markets.

But any move to take over the BP operations is unlikely to come until there is a clearer picture of the contingent liabilities faced by the company. Once that becomes clear, potential smaller suitors, such as Total, could be attracted by the opportunity to hive off BP operations and become a significant player in the energy market.

NO CHANGE

DESPITE warnings from some City analysts that the company is susceptible to a takeover bid that could see it broken up, the noises coming from the BP boardroom are defiant.

Although it will face a fierce public relations battle to repair its reputation the firm has a good chance of spreading some of the blame in the wake of the spill.

The other firms involved in the Deepwater Horizon drilling operation are likely to receive their share of punishment in the US courts and BP will be able to pursue their partners for damages caused by the spill. That could help the firm mitigate the losses it incurs during the clean up, as well as giving BP executives a plausible excuse to be allowed to continue operating in the Gulf region.

BP may also receive belated credit for its efforts in dealing with the leak, especially when Transocean - the rig's owners - and Halliburton - a key sub-contractor - have been criticised for avoiding responsibility for the crisis. That could help the company restore its reputation in the US and this effort could be helped with a series of carefully planned goodwill gestures across the affected region.

The BP board may consider removing chief executive Paul Hayward as a sacrificial lamb to US authorities.

But there may be another compelling reason BP will remain intact – efforts to integrate its operations into another oil giant are likely to be extremely complicated and other firms will be very nervous about taking on the liabilities incurred by BP during this catastrophic leak.