Unlimited liability for Gulf spills would kill development

Jim Mulva, ConocoPhillips’ chief executive, says that the unlimited liability some are proposing in Congress to punish operators for further spills in the Gulf of Mexico is inappropriate. That would raise the question of how many of the smaller companies operating in the Gulf could afford to get back out there to work following the lifting of the moratorium and even whether the risk reward equation would favor going out into the waters again for the biggest of companies. He said to analysts:

We will not develop the resources if we have that situation.

It may have sounded like a threat, but it is also a realistic assessment of the situation.

It is true that an increasing number of companies have been looking to the Gulf for prospects, given that it has been a good source of oil and natural gas over the years and new technology has made it even more so. But they will not risk their entire futures to get at the resources.

There are other offshore prospects, in places ranging from Ghana to Brazil to the Black Sea. And while it has long been easiser to work in the Gulf of Mexico than in most other parts of the world, the tightening of rules and enforcement will certainly require not only newer technology but more work.

The companies accept this is needed, and say they are prepared to accept it in the Gulf. Indeed, it may be something they end up having to deal with around the world.

But they will not agree to bet the company on a prospect in the Gulf.

Companies are reticent to make any further inroads into the Gulf at this point, given the uncertainties of how regulation will evolve, particularly ahead of the November elections. Mr Mulva says Conoco had been gradually picking up assets in the Gulf in recent years, as it felt it was under-represented. But after picking up some acreage in the last few licensing rounds, he believes the company is neither disadvantaged or advantaged, given how the political climate has changed.

Conoco will not make further moves until it knows what the rules are. Even without the unlimited liability out there, BP has been severely damaged by its accident. Which company would risk being left in a similar state, or worse, following a similar disaster?

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