BP’s costs growing in the Gulf as it tries to stop leak

The cost of last week’s rig accident, fire and eventual sinking in the Gulf of Mexico is continuing to rise. BP is responsible for the cleanup – a problem that, for now, at least, is continuing to grow. The UK oil company does not have insurance for oil spills, so will have to cover those costs itself. And it has yet to stem the leak.

Indeed, it became apparent today that it could take – in a worst case scenerio – several months to stop the leak. BP is attacking the problem on several fronts. The easiest and fastest is to activate the blow-out preventer, a system of valves designed to shut off an unexpected surge of oil or gas. If it can do that, the cleanup should be accomplished pretty quickly.

But, as a backup, BP already is bringing in two rigs to drill relief wells – a process that could take two to three months – to intersect the pipe and pump down a heavy fluid to stop the unrestrained flow. These rigs have to be taken away from work they were doing to drill other wells, which means a loss of time and money from those other operations. The process itself has its own costs, and it is time-consuming and delicate.

And, to limit the environmental impact in the meantime, BP is engineering a dome to put directly over the leaks to collect the oil and pipe it to tanks on the surface; a feat that has not been done at this water depth, 5,000 feet below the seabed, and could take up to four weeks to deploy.

All of this money spent on stopping the leak is on top of that being spent to contain it and prevent damage to the shoreline and wildlife in the area. Fears already have been raised. From the statement of the regulators who have joined forces in a Joint Command, overseeing the accident:

Sunday, an aircrew from the US Fish and Wildlife Service sighted five small whales during an over flight in the vicinity of the oil spill, which currently measures 48 miles by 39 miles at its widest points with varying levels of sheening, and is located 30 miles off the coast of Venice, La. The unified command is monitoring the situation and is working closely with officials from Fish and Wildlife, National Marine Fisheries Service and NOAA to understand the impact the spill and response activities may have on whales and other marine wildlife in the area. The use of dispersants has been adjusted to avoid areas where whales have been spotted.

If damage is done, it would represent another cost to BP – that of image – which is something the company clearly wants to avoid, given the string of problems it has sought to overcome in its US operations in recent years. Indeed, BP has been very upfront and aggressive in its response to the crisis, with Tony Hayward, group chief executive, even coming to Texas and Louisiana following the accident to meet with response personnel. And BP’s daily update running front and center on its website. In Mr Hayward’s own words:

The safety of the people working offshore is our top priority and the improved weather has created better conditions for our response. This, combined with the light, thin oil we are dealing with has further increased our confidence that we can tackle this spill offshore.

In the meantime, BP has pulled out all the stops on containment. More than 1,000 personnel have been activated to help with the response, which has involved placing 21,340 feet of containment boom at site, spraying 14,654 gallons of dispersant , engaging seven skimming boats, and 10 other response vessels.

And then there is the cost of the lawsuits. Several already have been filed.

Others in the industry are grumbling that the whole incident could have repercussions for them, if critics of offshore drilling in US waters use this as an example of the risks associated with the process. While such an accident is very rare in the industry, it comes just months after President Barack Obama proposed opening more areas to offshore drilling.

So the timing could not be worse. Indeed, some other companies already are having to scale back their work in the area because of the risks posed by the oil spill. Two nearby pipelines were shut. And the authorities said Ocean Endeavor, which had been drilling nearby, was evacuated today as a precaution. The rig, owned by Diamond Offshore Drilling, was in the area of the slick. The loss of time and money on these operations may end up being charged to BP.

The slick grew Monday to 48 miles by 39 miles at its widest points, with varying levels of sheening. It was still about 30 miles from the coastline, helped by weather and containment efforts. But that could change at any moment. With oil flowing from the leaks at a rate of about 1,000 barrels per day, the costs could continue to grow.

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