Daily Archives: June 15, 2010

Sheila McNulty

As Congress debates how to prevent another gulf spill like that impacting an ever-growing portion of America’s coastline, it is looking at the possiblity of imposing a significantly higher liability cap for operators in the gulf. PFC Energy says this will limit the ability of smaller companies that had making their way ever deeper into the Gulf to compete. Indeed, the consultancy notes, the implication of changes to liability levels and also liquidity tests being considered could reduce the number of qualified operators in the Gulf of Mexico from over 100 down to three – BP, ExxonMobil and Royal Dutch Shell.

Kate Mackenzie

hans s

Flickr: hans s

Remember how BP’s Gulf of Mexico spill response plan talked about the protection of walruses, sea otters and other animals not found in the region? And how the plan listed a deceased expert?

Ed Markey, chair of the House Energy and Commerce’s subcommittee on Energy and the Environment, says BP is not the only one with a duff plan; in fact the four other oil and gas majors appearing at the subcomittee’s hearings today all have similar flaws, he says. From his opening remarks:

In preparation for this hearing, the committee reviewed the oil spill safety response plans for all of the companies here today.

What we found was that these five companies have response plans that are virtually identical. The plans cite identical response capabilities and tout identical ineffective equipment. In some cases, they use the exact same words.

We found that all of these companies, not just BP, made the exact same assurances.

The covers of the five response plans are different colors, but the content is ninety percent identical.

Like BP, three other companies include references to protecting walruses, which have not called the Gulf of Mexico home for 3 million years.

Two other plans are such dead ringers for BP’s that they list a phone number for the same long-dead expert.

Just how badly this reflects on the industry alone is up for debate, of course – the Minerals Management Service presumably approved all those plans.  At pixel time the opening statements were rather bogged down in politics; with Republicans arguing the Gulf oil spill shouldn’t be used to opportunistically push through new regulation or other measures, and turning the focus onto the current administration.

Kate Mackenzie

Will Obama mention pricing carbon in his first Oval Office speech tonight?

There are plenty of reasons why not: the administration needs to win over more of the public on its response to the Gulf disaster, and a climate bill is still politically very difficult. Cap and trade itself, meanwhile, isn’t likely to be faring much better in the public opinion now than it ever has.

The New York Times reported at the weekend that even though Obama mentioned climate last week, his policy people are actually only working on clean energy measures (that is, green subsidies and new regulations, but not a price on carbon). And polling carried out in late May suggests that there is more appetite for clean energy measures, but as Ezra Klein points out, it does not mention climate. In the past day however both  Politico and the FT are both reporting sources saying that climate could indeed be in the mix.

Fitch cut BP’s credit rating a full six notches to BBB from AA on Tuesday.

The agency also set its rating watch on BP to ‘evolving’ from negative, as credit risks from the Deepwater Horizon spill remained unclear.

As the rating agency explained in its release:

The scale of today’s rating action has been partly driven by the increased risk that the balance between long-term and near-term cost payments may now be skewed much more heavily towards the near-term than previously anticipated by Fitch… In particular, the recent claims by U.S. state and federal authorities that BP escrow significant sums pre-emptively, ahead of any agreed claims process, represent a material change in approach, should it ultimately prove a legally supportable move against the company.

The principal changes in circumstances since Fitch’s downgrade to ‘AA’ RWN include: 1) the indication late last week from US government scientists of a significantly higher spill rate than previously announced by all parties, which Fitch expects will materially increase BP’s exposure to Justice Department fines payable in the near to medium-term, and 2) the significant step-up in action from the U.S. government surrounding calls for pre-emptive escrowing of damage claims. Both of these events have a direct bearing on BP’s fundamental financial flexibility.

This is a particularly key bit — risks over BP’s access to capital markets:

- Significance of Capital Market Access

The increased skewing of potential costs to the near-term is compounded by the limitations the severely adverse market reaction towards BP in recent weeks will pose to the company in accessing the full range of capital markets.

BP’s liquidity position as at the last investor conference call (4 June 2010) was USD5bn of available cash across the group, USD5.25bn of undrawn committed bank lines, and USD5.25bn of committed stand-by bank lines. Using Fitch’s forecasts, the group’s free cash flow before dividends for 2010 is USD6bn. This analysis does not include the potential to monetise existing assets.

In addition, Fitch would be surprised if BP did not suspend quarterly cash dividend payments until the operational and financial impact of the incident is clearer. The agency expects BP’s syndicated bank group to permit drawings under the group’s liquidity facilities (to the extent that they are contractually committed to provide funds) should BP choose to do so. Both of these actions would be supportive of the group’s liquidity position.

Fitch’s previous downgrade of BP on June 3 had been swiftly followed by actions from Moody’s and S&P.

Kate Mackenzie

Just as the big oil companies are expected to distance themselves from BP at Congressional hearings today, it seems that some Gulf shallow water oil and gas operators are seeking to distinguish themselves from their deepwater counterparts.

Shallow water drilling has so far not been subject to a moratorium in the US — despite fleeting reports to the contrary — but the industry is not taking any chances, forming a new coalition and, according to the Houston Chronicle, hiring Washington lobbyists. The industry says that even without a direct moratorium, confusion and hesitation over what new regulations might be introduced in the wake of the Deepwater Horizon disaster.

Fiona Harvey

The weather in Bonn for most of the two weeks of the United Nations climate change talks was muggy and grey, interspersed with thunder and some spectacular storms.

But inside the conference centre, where storms can usually be relied on, there were surprising signs of harmony. “People are working together, they are making progress,” one developed country official reported. Another said: “The atmosphere is actually very good.”

The weather changed, however, towards the close of the conference. Appearances of harmony rapidly broke down over a proposal to assess some of the scientific research around adopting a target of limiting global temperature rises to 1.5 degrees Celsius – a target far tougher than the current target, accepted in the Copenhagen Accord, of limiting rises to 2 degrees by mid-century.

Kate Mackenzie

BP had a rather chilling warning included in its plan to increase the amount of oil it collects from the Macondo well (our emphasis):

It is important to note that as we move into a multi-vessel containment operation the health and safety of our people remains our absolute number one priority. The risks of operating multiple facilities in close proximity must be carefully managed. Several hundred people are working in a confined space with live hydrocarbons on up to 4 vessels. This is significantly beyond both BP and industry practice. We will continue to agressively drive schedule to minimize the pollution, but we must not allow this drive to compromise our number one priority, that being the health and safety of our people. The continued support and direction of the US Coast Guard and the MMS is essential to a successful and safe operation.

BP’s Kent Wells made another video a few days ago explaining how the new collection efforts would (hopefully) work. In it, he talks a lot about how seriously BP takes redundancies (that’s technical speak for back-up facilities/capacity).

His presentation makes clear there will be quite a few vessels involved, although not all will necessarily be there at the same time.

This, as far as we can make out, are the major vessels either at the site or being sent there; there are likely several smaller ones for lightering (transferring oil between ships) too.

Kate Mackenzie

The House Energy and Commerce Committee has published documents relating to its hearings into the Deepwater Horizon accident and subsequent oil leak. Here’s one of them:

In another email, BP staffer Mark Hafle calls Macondo a ‘crazy well for sure’. The emails were exchanged on April 14, just six days before the Deepwater Horizon platform exploded.

Also included in the committee’s publications is an email exchange on April 16 about centralisers to stabilise the final string of casing down the well. The Congressmen say BP ignored advice from Halliburton to use 21 centralisers and used only six.

Kate Mackenzie

- Gasoline/petrol should cost $4.60/gallon in the US

- How to think about oil spills

- Years of BP internal probes warned of neglect

- Measuring methane spilled

- Natural gas‘ occasional tantrums not quite over

- Just how British is BP?

- How many relief wells?

Kate Mackenzie

- Obama to set bigger energy targets - FT

- US seeks $20bn BP fund – FT

- Production faces two-year setback - FT

- BP warns over latest oil capture plans - FT

- Onshore oil spill response is described as chaotic - NY Times

- BP may lose oil leases, contracts as spill punishment - Bloomberg

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