NEW ORLEANS, La. — An oil platform exploded and caught fire Thursday off the Louisiana coast, the second such disaster in the Gulf of Mexico in less than five months. All 13 crew members were rescued from the water in protective "Gumby suits."
The Coast Guard initially reported that an oil sheen a mile long and 100 feet wide had begun to spread from the site of the blast, about 200 miles west of the site of BP's massive spill. But hours later, Coast Guard Cmdr. Cheri Ben-Iesau said crews were unable to find any spill.
The company that owns the platform, Houston-based Mariner Energy, did not know what caused the blast.
Louisiana Gov. Bobby Jindal said Mariner officials told him there were seven active production wells on the platform, and they were shut down shortly after the fire broke out.
The Coast Guard said Mariner Energy reported the oil sheen. But the company said in a public statement that an initial flyover of the platform did not reveal any spilled oil.
Photos from the scene showed at least five ships floating near the platform. Three of them were shooting great plumes of water onto the machinery. Light smoke could be seen drifting across the deep blue waters of the gulf.
By late afternoon, the fire on the platform was out.
The platform is in about 340 feet of water and about 100 miles south of Louisiana's Vermilion Bay. Its location is considered shallow water, much less than the approximately 5,000 feet where BP's well spewed oil and gas for three months after the April rig explosion.
Responding to any oil spill in shallow water would be much easier than in deep water, where crews depend on remote-operated vehicles access equipment on the sea floor.
A homeland security update obtained by The Associated Press said the platform was producing 58,800 gallons of oil and 900,000 cubic feet of gas per day. The platform can store 4,200 gallons of oil.
White House press secretary Robert Gibbs said the administration has "response assets ready for deployment should we receive reports of pollution in the water."
Crew members were found floating in the water, huddled together in insulated survival outfits called "Gumby suits" for their resemblance to the cartoon character.
"These guys had the presence of mind, used their training to get into those Gumby suits before they entered the water," Coast Guard spokesman Chief Petty Officer John Edwards said.
The crew was being flown to a hospital in Houma. The Coast Guard said one person was injured, but the company said there were no injuries.
A company report said the well was drilled in the third quarter of 2008.
There are about 3,400 platforms operating in the Gulf, according to the American Petroleum Institute. Together they pump about a third of the America's domestic oil, forming the backbone of the country's petroleum industry.
Platforms are vastly different from oil rigs like the Deepwater Horizon. They are usually brought in after wells are already drilled and sealed.
"A production platform is much more stable," said Andy Radford, an API expert on offshore oil drilling. "On a drilling rig, you're actually drilling the well. You're cutting. You're pumping mud down the hole. You have a lot more activity on a drilling rig."
In contrast, platforms are usually placed atop stable wells where the oil is flowing at a predictable pressure, he said. A majority of platforms in the Gulf do not require crews on board.
Many platforms, especially those in shallower water, stand on legs that are drilled into the sea floor. Like a giant octopus, they spread numerous pipelines across the sea floor and can tap into many wells at once.
Platforms do not have blowout preventers, but they are usually equipped with a series of redundant valves that can shut off oil and gas at different points along the pipeline.
Numerous platforms were damaged during hurricanes Katrina and Rita. The storms broke pipelines and oil spilled into the Gulf. But the platforms successfully kept major spills from happening, Radford said.
"Those safety valves did their job," he said.
Federal authorities have cited Mariner Energy and related entities for 10 accidents in the Gulf of Mexico over the last four years, according to safety records from the Bureau of Ocean Energy Management, Regulation and Enforcement.
The accidents range from platform fires to pollution spills and a blowout, according to accident-investigation reports from the agency formerly known as the Minerals Management Service.
In 2007, welding sparks falling onto an oil storage tank caused a flash fire that slightly burned a contract worker. The Minerals Management Service issued a $35,000 fine.
Mariner Energy Inc. focuses on oil and gas exploration and production in the Gulf. In April, Apache Corp., another independent oil company, announced plans to buy Mariner in a cash-and-stock deal valued at $3.9 billion, including the assumption of about $1.2 billion of Mariner's debt. That deal is pending.
On Friday, BP was expected to begin the process of removing the cap and failed blowout preventer, another step toward completion of a relief well that would put a final seal on the well. The Deepwater Horizon exploded April 20, killing 11 people and setting off a three-month leak that totaled 206 million gallons of oil.
___
Associated Press writers Janet McConnaughey in New Orleans, Chris Kahn in New York, Eileen Sullivan, Matthew Daly and Gerry Bodlander in Washington, Garance Burke in Fresno, Calif., and researcher Monika Mathur in New York contributed to this report.
Showing posts with label BP. Show all posts
Showing posts with label BP. Show all posts
Thursday, September 2, 2010
Monday, July 5, 2010
Kevin Costner's Oil-Water separation machines to be deployed by British Petroleum
Jay Vise Reporting
BP has given the green light for funding of a device that can separate oil from water.
Development of the machine, which uses a centrifuge to separate the fluids, has been backed by actor Kevin Costner to the tune of $25 million.
John Houghtaling, Costner's chief partner in the project, told WWL First News that the oil company has ordered 32 of the devices for use in the Gulf of Mexico.
"In a matter of weeks, we can be manufacturing ten of these a week," Houghtaling said. "So we're hoping by the first of August to have all 32 of these things in the Gulf."
Listen to Houtaling talk about the deployment of the device:
According to Houtaling, the machines cost roughly half a million dollars to build, but also require the hiring of vessels to take them out onto the water.
Though the world-famous actor and Houtaling are both pleased that BP has now agreed to deploy the devices, Costner told members of Congress earlier this week. that he'd had a hard time getting an opportunity to try out his centrifuge for the Coast Guard.
"We would offer to take our machines out there but we couldn't get onto the spots because the Coast Guard would regulate that we couldn't get there," Costner testified.
Houghtaling said that in addition to providing clean-up duty in the gulf, deployment of even more of the devices could aid in shortening the six-month moratorium on deep-water drilling.
He said that he'd like to see the government use the machines as a safety measure to keep the deep-water drilling rigs in operation as safety procedures are reviewed.
"By the end of August...our company can have thirty-three of the machines around the rigs. If there's a spill, we can deploy," Houtaling said.
To view an animation of how the device works, click the window below:
Meanwhile Costner's company is moving toward leasing 16 more oil sucking and separating machines to Plaquemines Parish officials directly. They say if BP won't pay for that, they may sell the oil local officials pull from the water and fund the machines that way.
View All 12 "Spill Cam" Video Feeds - WWL - AM870 | FM105.3
BP has given the green light for funding of a device that can separate oil from water.
Development of the machine, which uses a centrifuge to separate the fluids, has been backed by actor Kevin Costner to the tune of $25 million.
John Houghtaling, Costner's chief partner in the project, told WWL First News that the oil company has ordered 32 of the devices for use in the Gulf of Mexico.
"In a matter of weeks, we can be manufacturing ten of these a week," Houghtaling said. "So we're hoping by the first of August to have all 32 of these things in the Gulf."
Listen to Houtaling talk about the deployment of the device:
According to Houtaling, the machines cost roughly half a million dollars to build, but also require the hiring of vessels to take them out onto the water.
Though the world-famous actor and Houtaling are both pleased that BP has now agreed to deploy the devices, Costner told members of Congress earlier this week. that he'd had a hard time getting an opportunity to try out his centrifuge for the Coast Guard.
"We would offer to take our machines out there but we couldn't get onto the spots because the Coast Guard would regulate that we couldn't get there," Costner testified.
Houghtaling said that in addition to providing clean-up duty in the gulf, deployment of even more of the devices could aid in shortening the six-month moratorium on deep-water drilling.
He said that he'd like to see the government use the machines as a safety measure to keep the deep-water drilling rigs in operation as safety procedures are reviewed.
"By the end of August...our company can have thirty-three of the machines around the rigs. If there's a spill, we can deploy," Houtaling said.
To view an animation of how the device works, click the window below:
Meanwhile Costner's company is moving toward leasing 16 more oil sucking and separating machines to Plaquemines Parish officials directly. They say if BP won't pay for that, they may sell the oil local officials pull from the water and fund the machines that way.
View All 12 "Spill Cam" Video Feeds - WWL - AM870 | FM105.3
Monday, June 14, 2010
Kevin Costner Sold 32 Oil-Water Separation Machines to British Petroleum
Kevin Costner Sold 32 Oil-Water Separation Machines to British Petroleum
Tuesday, May 25, 2010
If You Build It : Kevin Costner Builds Oil-Water Separation Machines
By LIZ ROBBINS
For 15 years, Kevin Costner has been overseeing the construction of oil separation machines to prepare for the possibility of another disaster of the magnitude of the 1989 Exxon Valdez spill.
Does this evoke his tagline from “Field of Dreams?” It seems that Mr. Costner, the 55-year-old actor, environmental activist and fisherman, was ready for the current spill in the gulf.
Disturbed by the effects of the Valdez spill in Alaska, Mr. Costner bought the nascent technology from the government in 1995 and put $24 million of his own money into developing it for the private sector.
“Kevin saw the Exxon Valdez spill, and as a fisherman and an environmentalist, it just stuck in his craw, the fact that we didn’t have separation technology,” said John Houghtaling, Mr. Costner’s lawyer and business partner as chief executive with Ocean Therapy Solutions, which developed the technology.
Mr. Costner’s brother, Dan, is a scientist who worked on the project and was also in New Orleans this week.
On Wednesday, BP’s chief operating officer, Doug Suttles, said that the company had approved six of Ocean Therapy’s 32 machines for testing. All boast centrifuge processing technology — giant vacuum-like machines that suck oil from water, separate the oil, store it in a tanker and send the water, 99.9 percent purified, back into the gulf.
“I’m very happy the light of day has come to this,” Mr. Costner said at a news conference in New Orleans. He said he was “very sad” about the spill, “but this is why it’s developed.”
“It’s prepared to go out and solve problems, not talk about them,” the actor said of the technology.
Mr. Houghtaling of Ocean Therapy Solutions said that the company had trained independent contractors and were bringing in scientists from U.C.L.A. to deploy the machines, which were waiting on a barge in Venice, La., on Wednesday afternoon.
The technology was available for use 10 years ago, Mr. Houghtaling said. “These machines have been very robust, but nobody’s been interested in them until now,” he added.
BP officials and Ocean Therapy are working to determine where best in the gulf to test the machines, and if all goes well, the technology will be running within the week, he said. “We just need the green light from BP.”
He said that the largest four machines have the capability of separating 210,000 gallons of oil from water a day, 200 gallons a minute.
Monday, May 24, 2010
The $150 Billion Question: Is BP Too Big to Fail?
May 24, 2010
Dear Outstanding Investments Reader:
The oil blowout in the Gulf of Mexico continues. The world's third-largest publicly-held oil company, BP (BP: NYSE), is squarely at ground-zero -- literally and figuratively.
Can this blowout also blow up BP? Or put another way, is BP too big to fail? That's the $150 billion question. And sooner or later, we're going to find out.
Getting Worse, for How Long?
How bad is the oil spill? It's bad and getting worse. I said a few weeks ago that this oil spill would get worse before it gets better. We're still in that "getting worse" phase. The continuing oil spill is so bad that it's hard to say how truly bad it is.
Conventional wisdom is that oil rises through water and floats on the top. Conventional wisdom is also wrong. In a May 19th alert, I discussed how much of the gushing oil remains deep underwater in the Gulf of Mexico. No one knows much about where the underwater oil is, or where and how it's harming aquatic life in the water column. Meanwhile, topside, we have oil washing ashore in significant, gooey amounts, into the coastal marshes and other fragile ecosystems. It's just awful.
According to Roger Helm, of the U.S. Fish & Wildlife Service (and quoted in the Washington Post), "We've never really seen this kind of thing. This one's coming in a way that has a lot of us working to understand, what is going to be the longer-term impact? […] How do we get our brain around this?"
The Aliens Have Landed
"How do we get our brain around this?" Well, first you have to understand what it means to have a deepwater blowout. This has NEVER happened before. It's an entirely new form of chemistry and physics. Throw out the old books.
Deepwater work involves extreme risks and events that are difficult to foresee. Just the mechanical tolerances for equipment -- down to the smallest of components like seals, gaskets and wire bundles -- are close to basic, atomic, physical limits of strength. Yes, the technology is impressive. That's because it's at the far edge of the envelope, at the limits of industrial capability.
Add to this that in the deep sea, strange things happen. There are bacteria that eat iron (look at the remains of the Titanic, for example). Natural gas forms into solids called clathrates. Other kinds of materials -- metals, coatings and fluids -- behave unpredictably.
When you're in deepwater, you cross over something like an "event horizon." You're not just dealing with complicated systems any more. You've gone from complicated to complex – which represents a big difference in terms of predicting things. Small inputs can trigger large, asymmetrical responses.
The allegory is that the aliens have landed, and they're tearing up the place. It's like First Contact or something. No one has ever had to deal with this scope of disaster before.
We're facing a deepwater super-well, spewing immense volumes of oil under immense levels of pressure into freezing water, through badly damaged equipment. Uncontrolled, this thing could blast oil into the benthic regions of the Gulf of Mexico for years. Science fiction has become science fact. Wrap your brain around it.
Kill the Well
The best hope for the near term is that BP kills the well this week. BP has moved pumping equipment, drilling mud and cement into position. The total energy available for pumping is in the range of 50,000 horsepower. That's the equivalent power output of ten standard railway locomotives.
In some respects, the pumping power is similar to a "fracking" job, like with fracturing the Marcellus Shale or Bakken Shale. The plan is to inject drilling mud into a series of valves at the bottom of the blowout preventer. The idea is to "out-pump the well," in the words of one BP representative with whom I spoke last week.
If the well won't take the kill-shot, then we might see uncontrolled oil gushing for up to three more months. That's how long it will take two different rigs to drill "relief" wells to intersect the existing hole, and pump it full of cement. Here's the BP graphic.
Will the relief well work? It ought to. These kinds of things have worked in the past. But it's going to take time -- three months or more -- and every day of blowout is more oil pouring into the Gulf, with more environmental damage.
Plus, keep in mind that under the best circumstances the relief well won't be easy to accomplish. For example, when the relief well gets near the bottom of the existing well, they'll have to "steer" the bit precisely, so as to bust through the cement and steel casing. It's like hitting a coffee can at 18,000 feet.
How Much Oil?
Meanwhile, how bad is the ongoing oil spill? It's likely that the oil volumes coming from the blown out well are more than the previously-advertised 5,000 barrels of oil per day. Just consider that BP is recovering anywhere from 2,500 to 5,000 barrels of oil per day, via the 4-inch wide "insertion tube" -- add that to the additional crude spilling directly into the water and it’s pretty clear to see the total could be more than 5,000 barrels a day. The amount varies, day to day, because the oil is mixed in with gas slugs. Sometimes the tube sucks up a lot of oil. Sometimes it's mostly gas.
To my mind, it's no big shock that the oil volumes have apparently increased over the past month, since the blowout occurred.
Initially, there was probably crud or debris down in the pipes that choked-back some of the oil flow. Then over time, those blockages were blasted out of the way by the continuing pressure of the oil blowout.
Now, we have oil and gas coming out of the reservoir, and up the casing pipe at high velocity. It's likely there are small bits of rock, sand, clay and whatever else in that fluid stream. So the continuing flow is essentially sand-blasting the innards of the blowout preventer and pipe system. The flow of oil may actually be widening its own path. That's why we see increased amounts of oil and gas over time.
Ugly Images
You want to see something ugly? Here goes.
This image is oil billowing out of the cracked riser pipe. It's just above the blowout preventer, manufactured by Cameron International (CAM: NYSE). This uncontrolled oil plume is in addition to the other oil that's moving "up" the riser piping (on the left of the photo).
As I've mentioned, some of the oil is being sucked out of the broken riser. (It's further along the pipe system.) This oil and gas moves up a long pipeline to the surface. There, it gets processed for temporary storage aboard a drilling ship named the Discoverer Enterprise, owned by Transocean, Ltd. (RIG: NYSE) . In addition to recovering the oil, the Enterprise is flaring about 14 million cubic feet of natural gas per day.
We can see a lot of what's going on via streaming video from the deep-sea remotely operating vehicles (ROVs). Some of these remarkable systems are manufactured and serviced by Oceaneering International (OII: NYSE). The ROVs show hard evidence that large volumes of oil are still entering into the water column, despite the physical recovery of the 5,000 or so barrels per day.
Too Big to Fail?
The continuing BP oil spill has prompted many comparisons with the Exxon Valdez oil spill, 20 years ago. Exxon shares took a big hit, and then recovered. So by analogy, a lot of handicappers are wondering if BP shares are taking the same kind of hit, and will come out of this and recover.
Well, Exxon Valdez was then, in Alaska. This is now, in the Gulf of Mexico. So every day, as things unfold, I ask myself how bad this can get for BP. BP management has stated that the company can weather this crisis. But let's ask it another way. Is BP too big to fail?
Right now, BP is paying through the nose. So far, BP has spent over $500 million on response-related costs, just in the first month. This deepwater blowout is unprecedented in so many ways -- expensive is just one of them. I've seen numbers like $10 billion, eventually, just for the out-of-pocket costs for well-control and oil spill abatement. Truth is, nobody knows and no one will know for many years.
Meanwhile, the U.S. plaintiff-lawyer community is lined up to take a chunk out of BP. So are the state governments, as well as the federal government. The Department of Justice is reviewing the facts, with the possible end of filing criminal charges against BP. Just recall what a criminal conviction did to the fortunes of, say, the late Arthur Anderson Co.
BP Is Important
Keep in mind, though, that BP is a critical part of the U.S. energy system. By extension, BP is important to the U.S. government and national energy policy.
The fact is that BP is the largest oil producer in the U.S., at over 400,000 barrels per day just from the Gulf of Mexico. Up north, BP has a dominant position at Prudhoe Bay, Alaska, a field that lifts about another 400,000 barrels of oil per day.
BP has a controlling interest in the Alaska Pipeline.
Then there's BP's nationwide, downstream refining and product-marketing system. Think about how many cars, trucks, buses, railway locomotives and airplanes run on BP fuel, delivered under one contract or another. Try sorting that mess out if BP goes down hard.
Consider that BP is a large, global concern. Every day, across the world, BP produces about 4 million barrels of oil equivalent (BOE). That's about 4.7% of the world's liquid energy supply. Also, BP has 42 major, new oil projects under development, and scheduled to be online by 2015, producing another 1 million BOE per day. Screw that up by putting BP out of business, and we'll probably see those $200 per barrel oil prices sooner than we thought.
Beyond the raw numbers, BP has a critical energy relationship with the government of Russia. BP also has a large contract with the government of Iraq to resurrect Iraq's oil industry. So BP is important to the strategic aims of Russia and the West (certainly to the U.S.). Put BP out of business, and then what? Break out your prayer rug and face Mecca, I guess.
If push comes to shove, you should expect that BP will have the full backing of the UK government. BP is a huge employer in Britain. BP pays an immense amount of taxes to the UK government, and the UK government needs those funds. Pres. Obama may have returned a bust of Winston Churchill to the British, early in his presidency. But the British will want Obama's head on a platter if BP goes down under his administration.
Right now, the dividend yield for BP is 7.4%. That's nice, but the high return probably includes the risk that the BP board will -- sooner or later -- slash the dividend. It would be unseemly for BP to be paying large dividends, at the same time that it's also diverting funds to well-control and cleanup costs, not to mention handling damage claims. So the dividend is no longer safe, in my view.
BP -- Professional Defendant
Here's something else. BP may as well change its business model to include being a professional defendant. In years to come, BP will devote immense amounts of money and management time to litigation.
BP may even have a hard time making future energy development deals, due to the Deepwater Horizon legacy issues. I can hear it now. "Oh yes, you're the company that blew out that well in the Gulf of Mexico." The image problem may extend to BP having a hard time recruiting talent in years to come, due to the stigma.
Back to the Question
So we come back full circle to that question. Is BP too big to fail? I don't think BP will "fail." That is, BP is going to "pay" but not fail.
I'll feel a heck of a lot better about BP's prospects if (when?) BP kills that well this week. I'm not down there on the water, and I only know what I've been told. But I have a good feeling about BP killing the well. They literally have the horsepower to do it, if it can be accomplished at all.
If this week's kill-shot doesn't work, then I believe BP will nail the well in three months with the relief wells. But killing the well now is obviously better, in every way. With an immediate well-kill, there's a HUGE cleanup bill ahead of BP. But the "good" news is that the oil spill will stop. At least there won't be more oil gushing out every day.
Will the Short-Sellers Fail?
There's been a lot of short-selling of BP in recent weeks. A lot of players are betting that the share price for BP will fall, and even that BP will fail. Watch out, boys and girls. If BP kills that well this week, watch for a spike in the share price, with plenty of short-covering.
If you want to sell into that short-covering, then be ready to pull the trigger fast. I think BP shares will pop up after a successful well-kill, and then pull back after the shorts do their covering thing.
If there's no well-kill? If BP has to continue drilling relief wells? Ugh. More oil blowing out for three more months. Bad becomes much worse. The markets will hate BP. And BP stock will slide downwards.
It's Not Just BP That's Down, Lately
Final point. BP shares are way down in the past month. The Gulf of Mexico disaster is a big part of it. But then again, due to world economic issues the price of oil has dropped from the $85 per barrel range to the $70 range. So the entire oil sector is down.
Chevron, for example, is down about 10% in the past month. So is Conoco-Phillips. Exxon Mobil is down about 12% in the same time period. Thus it's safe to say that the BP share slide is not entirely due to the Gulf of Mexico well blowout. If (when) the price of oil goes back up, that alone will lift BP shares.
Is BP too big to fail? Well, BP sure is taking its hits. I'll climb out on a limb and say that I think BP will be around for many years to come. And the company will recover from this horrible mess.
That's all for now. Thanks for reading...
Byron W. King
Dear Outstanding Investments Reader:
The oil blowout in the Gulf of Mexico continues. The world's third-largest publicly-held oil company, BP (BP: NYSE), is squarely at ground-zero -- literally and figuratively.
Can this blowout also blow up BP? Or put another way, is BP too big to fail? That's the $150 billion question. And sooner or later, we're going to find out.
Getting Worse, for How Long?
How bad is the oil spill? It's bad and getting worse. I said a few weeks ago that this oil spill would get worse before it gets better. We're still in that "getting worse" phase. The continuing oil spill is so bad that it's hard to say how truly bad it is.
Conventional wisdom is that oil rises through water and floats on the top. Conventional wisdom is also wrong. In a May 19th alert, I discussed how much of the gushing oil remains deep underwater in the Gulf of Mexico. No one knows much about where the underwater oil is, or where and how it's harming aquatic life in the water column. Meanwhile, topside, we have oil washing ashore in significant, gooey amounts, into the coastal marshes and other fragile ecosystems. It's just awful.
According to Roger Helm, of the U.S. Fish & Wildlife Service (and quoted in the Washington Post), "We've never really seen this kind of thing. This one's coming in a way that has a lot of us working to understand, what is going to be the longer-term impact? […] How do we get our brain around this?"
The Aliens Have Landed
"How do we get our brain around this?" Well, first you have to understand what it means to have a deepwater blowout. This has NEVER happened before. It's an entirely new form of chemistry and physics. Throw out the old books.
Deepwater work involves extreme risks and events that are difficult to foresee. Just the mechanical tolerances for equipment -- down to the smallest of components like seals, gaskets and wire bundles -- are close to basic, atomic, physical limits of strength. Yes, the technology is impressive. That's because it's at the far edge of the envelope, at the limits of industrial capability.
Add to this that in the deep sea, strange things happen. There are bacteria that eat iron (look at the remains of the Titanic, for example). Natural gas forms into solids called clathrates. Other kinds of materials -- metals, coatings and fluids -- behave unpredictably.
When you're in deepwater, you cross over something like an "event horizon." You're not just dealing with complicated systems any more. You've gone from complicated to complex – which represents a big difference in terms of predicting things. Small inputs can trigger large, asymmetrical responses.
The allegory is that the aliens have landed, and they're tearing up the place. It's like First Contact or something. No one has ever had to deal with this scope of disaster before.
We're facing a deepwater super-well, spewing immense volumes of oil under immense levels of pressure into freezing water, through badly damaged equipment. Uncontrolled, this thing could blast oil into the benthic regions of the Gulf of Mexico for years. Science fiction has become science fact. Wrap your brain around it.
Kill the Well
The best hope for the near term is that BP kills the well this week. BP has moved pumping equipment, drilling mud and cement into position. The total energy available for pumping is in the range of 50,000 horsepower. That's the equivalent power output of ten standard railway locomotives.
In some respects, the pumping power is similar to a "fracking" job, like with fracturing the Marcellus Shale or Bakken Shale. The plan is to inject drilling mud into a series of valves at the bottom of the blowout preventer. The idea is to "out-pump the well," in the words of one BP representative with whom I spoke last week.
If the well won't take the kill-shot, then we might see uncontrolled oil gushing for up to three more months. That's how long it will take two different rigs to drill "relief" wells to intersect the existing hole, and pump it full of cement. Here's the BP graphic.
Will the relief well work? It ought to. These kinds of things have worked in the past. But it's going to take time -- three months or more -- and every day of blowout is more oil pouring into the Gulf, with more environmental damage.
Plus, keep in mind that under the best circumstances the relief well won't be easy to accomplish. For example, when the relief well gets near the bottom of the existing well, they'll have to "steer" the bit precisely, so as to bust through the cement and steel casing. It's like hitting a coffee can at 18,000 feet.
How Much Oil?
Meanwhile, how bad is the ongoing oil spill? It's likely that the oil volumes coming from the blown out well are more than the previously-advertised 5,000 barrels of oil per day. Just consider that BP is recovering anywhere from 2,500 to 5,000 barrels of oil per day, via the 4-inch wide "insertion tube" -- add that to the additional crude spilling directly into the water and it’s pretty clear to see the total could be more than 5,000 barrels a day. The amount varies, day to day, because the oil is mixed in with gas slugs. Sometimes the tube sucks up a lot of oil. Sometimes it's mostly gas.
To my mind, it's no big shock that the oil volumes have apparently increased over the past month, since the blowout occurred.
Initially, there was probably crud or debris down in the pipes that choked-back some of the oil flow. Then over time, those blockages were blasted out of the way by the continuing pressure of the oil blowout.
Now, we have oil and gas coming out of the reservoir, and up the casing pipe at high velocity. It's likely there are small bits of rock, sand, clay and whatever else in that fluid stream. So the continuing flow is essentially sand-blasting the innards of the blowout preventer and pipe system. The flow of oil may actually be widening its own path. That's why we see increased amounts of oil and gas over time.
Ugly Images
You want to see something ugly? Here goes.
This image is oil billowing out of the cracked riser pipe. It's just above the blowout preventer, manufactured by Cameron International (CAM: NYSE). This uncontrolled oil plume is in addition to the other oil that's moving "up" the riser piping (on the left of the photo).
As I've mentioned, some of the oil is being sucked out of the broken riser. (It's further along the pipe system.) This oil and gas moves up a long pipeline to the surface. There, it gets processed for temporary storage aboard a drilling ship named the Discoverer Enterprise, owned by Transocean, Ltd. (RIG: NYSE) . In addition to recovering the oil, the Enterprise is flaring about 14 million cubic feet of natural gas per day.
We can see a lot of what's going on via streaming video from the deep-sea remotely operating vehicles (ROVs). Some of these remarkable systems are manufactured and serviced by Oceaneering International (OII: NYSE). The ROVs show hard evidence that large volumes of oil are still entering into the water column, despite the physical recovery of the 5,000 or so barrels per day.
Too Big to Fail?
The continuing BP oil spill has prompted many comparisons with the Exxon Valdez oil spill, 20 years ago. Exxon shares took a big hit, and then recovered. So by analogy, a lot of handicappers are wondering if BP shares are taking the same kind of hit, and will come out of this and recover.
Well, Exxon Valdez was then, in Alaska. This is now, in the Gulf of Mexico. So every day, as things unfold, I ask myself how bad this can get for BP. BP management has stated that the company can weather this crisis. But let's ask it another way. Is BP too big to fail?
Right now, BP is paying through the nose. So far, BP has spent over $500 million on response-related costs, just in the first month. This deepwater blowout is unprecedented in so many ways -- expensive is just one of them. I've seen numbers like $10 billion, eventually, just for the out-of-pocket costs for well-control and oil spill abatement. Truth is, nobody knows and no one will know for many years.
Meanwhile, the U.S. plaintiff-lawyer community is lined up to take a chunk out of BP. So are the state governments, as well as the federal government. The Department of Justice is reviewing the facts, with the possible end of filing criminal charges against BP. Just recall what a criminal conviction did to the fortunes of, say, the late Arthur Anderson Co.
BP Is Important
Keep in mind, though, that BP is a critical part of the U.S. energy system. By extension, BP is important to the U.S. government and national energy policy.
The fact is that BP is the largest oil producer in the U.S., at over 400,000 barrels per day just from the Gulf of Mexico. Up north, BP has a dominant position at Prudhoe Bay, Alaska, a field that lifts about another 400,000 barrels of oil per day.
BP has a controlling interest in the Alaska Pipeline.
Then there's BP's nationwide, downstream refining and product-marketing system. Think about how many cars, trucks, buses, railway locomotives and airplanes run on BP fuel, delivered under one contract or another. Try sorting that mess out if BP goes down hard.
Consider that BP is a large, global concern. Every day, across the world, BP produces about 4 million barrels of oil equivalent (BOE). That's about 4.7% of the world's liquid energy supply. Also, BP has 42 major, new oil projects under development, and scheduled to be online by 2015, producing another 1 million BOE per day. Screw that up by putting BP out of business, and we'll probably see those $200 per barrel oil prices sooner than we thought.
Beyond the raw numbers, BP has a critical energy relationship with the government of Russia. BP also has a large contract with the government of Iraq to resurrect Iraq's oil industry. So BP is important to the strategic aims of Russia and the West (certainly to the U.S.). Put BP out of business, and then what? Break out your prayer rug and face Mecca, I guess.
If push comes to shove, you should expect that BP will have the full backing of the UK government. BP is a huge employer in Britain. BP pays an immense amount of taxes to the UK government, and the UK government needs those funds. Pres. Obama may have returned a bust of Winston Churchill to the British, early in his presidency. But the British will want Obama's head on a platter if BP goes down under his administration.
Right now, the dividend yield for BP is 7.4%. That's nice, but the high return probably includes the risk that the BP board will -- sooner or later -- slash the dividend. It would be unseemly for BP to be paying large dividends, at the same time that it's also diverting funds to well-control and cleanup costs, not to mention handling damage claims. So the dividend is no longer safe, in my view.
BP -- Professional Defendant
Here's something else. BP may as well change its business model to include being a professional defendant. In years to come, BP will devote immense amounts of money and management time to litigation.
BP may even have a hard time making future energy development deals, due to the Deepwater Horizon legacy issues. I can hear it now. "Oh yes, you're the company that blew out that well in the Gulf of Mexico." The image problem may extend to BP having a hard time recruiting talent in years to come, due to the stigma.
Back to the Question
So we come back full circle to that question. Is BP too big to fail? I don't think BP will "fail." That is, BP is going to "pay" but not fail.
I'll feel a heck of a lot better about BP's prospects if (when?) BP kills that well this week. I'm not down there on the water, and I only know what I've been told. But I have a good feeling about BP killing the well. They literally have the horsepower to do it, if it can be accomplished at all.
If this week's kill-shot doesn't work, then I believe BP will nail the well in three months with the relief wells. But killing the well now is obviously better, in every way. With an immediate well-kill, there's a HUGE cleanup bill ahead of BP. But the "good" news is that the oil spill will stop. At least there won't be more oil gushing out every day.
Will the Short-Sellers Fail?
There's been a lot of short-selling of BP in recent weeks. A lot of players are betting that the share price for BP will fall, and even that BP will fail. Watch out, boys and girls. If BP kills that well this week, watch for a spike in the share price, with plenty of short-covering.
If you want to sell into that short-covering, then be ready to pull the trigger fast. I think BP shares will pop up after a successful well-kill, and then pull back after the shorts do their covering thing.
If there's no well-kill? If BP has to continue drilling relief wells? Ugh. More oil blowing out for three more months. Bad becomes much worse. The markets will hate BP. And BP stock will slide downwards.
It's Not Just BP That's Down, Lately
Final point. BP shares are way down in the past month. The Gulf of Mexico disaster is a big part of it. But then again, due to world economic issues the price of oil has dropped from the $85 per barrel range to the $70 range. So the entire oil sector is down.
Chevron, for example, is down about 10% in the past month. So is Conoco-Phillips. Exxon Mobil is down about 12% in the same time period. Thus it's safe to say that the BP share slide is not entirely due to the Gulf of Mexico well blowout. If (when) the price of oil goes back up, that alone will lift BP shares.
Is BP too big to fail? Well, BP sure is taking its hits. I'll climb out on a limb and say that I think BP will be around for many years to come. And the company will recover from this horrible mess.
That's all for now. Thanks for reading...
Byron W. King
Sunday, May 16, 2010
Corporations:Unaccountable,Out of Control,Environmental Terrorists !
From Wall Street to the Gulf of Mexico, the news lately has been full of disasters caused by big corporations. They're out of control. Unaccountable. And they're getting away with it because they've bought so much influence in Washington.
It's time to take on the corporate lobbyists who have a stranglehold on our democracy. So on Monday at noon, thousands of progressives from MoveOn, AFL-CIO, SEIU, Jobs for Justice and National People's Action are going straight to K Street in Washington, DC to let the corporate lobbyists and their friends in Congress know we've had enough.
Since you don't live in the DC area, you probably think you can't be there. But we've rigged up an awesome virtual "march" web page that will allow you to still make your voice heard—right from your desk. You can join the event live from your computer anytime between 11:45 a.m. and 2 p.m.
Click here to RSVP:
At the virtual march, you can:
* Check out live video and a live blog from the march site.
* Make sure the march's message reaches Washington by letting your senators know we need to end the domination of corporations in Washington, DC.
* Talk to other virtual marchers and share a photo of yourself with your own rally sign.
RSVP to join the march online and add your voice here.
Hope to see you there, and thanks for all you do.
–Ilyse, Amy, Tim, Milan, and the rest of the team
P.S. The virtual march will be posted at this link tomorrow, if you want to bookmark it now!
Want to support our work? We're entirely funded by our 5 million members—no corporate contributions, no big checks from CEOs. And our tiny staff ensures that small contributions go a long way. Chip in here.
It's time to take on the corporate lobbyists who have a stranglehold on our democracy. So on Monday at noon, thousands of progressives from MoveOn, AFL-CIO, SEIU, Jobs for Justice and National People's Action are going straight to K Street in Washington, DC to let the corporate lobbyists and their friends in Congress know we've had enough.
Since you don't live in the DC area, you probably think you can't be there. But we've rigged up an awesome virtual "march" web page that will allow you to still make your voice heard—right from your desk. You can join the event live from your computer anytime between 11:45 a.m. and 2 p.m.
Click here to RSVP:
At the virtual march, you can:
* Check out live video and a live blog from the march site.
* Make sure the march's message reaches Washington by letting your senators know we need to end the domination of corporations in Washington, DC.
* Talk to other virtual marchers and share a photo of yourself with your own rally sign.
RSVP to join the march online and add your voice here.
Hope to see you there, and thanks for all you do.
–Ilyse, Amy, Tim, Milan, and the rest of the team
P.S. The virtual march will be posted at this link tomorrow, if you want to bookmark it now!
Want to support our work? We're entirely funded by our 5 million members—no corporate contributions, no big checks from CEOs. And our tiny staff ensures that small contributions go a long way. Chip in here.
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