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Sunday, May 30, 2010 7:45:46 PM
National Post: Oil spill puts future of BP in doubt
Janet Whitman, Financial Post
Published: Sunday, May 30, 2010
A sign by the side of the road near Grand Isle, Louisiana. The BP brand has suffered damage due to the company's failure to contain oil leaking from a well into the Gulf of Mexico.
NEW YORK – After BP PLC failed once again to plug the worst oil spill in U.S. history, the British corporate giant faces what could be an even bigger challenge: justifying its continued existence.
BP's brand is by no means damaged beyond repair at this stage, but as things worsen at the disaster in the Gulf of Mexico some observers are saying the company would be better off selling itself or many of its prized assets to its rivals.
"A crisis like this can break a company," said Ronn Torossian, chief executive of New York-based P.R. firm 5WPR. "BP is clearly in a lot of trouble. It's too soon to know whether the company can recover, but the P.R. problem keeps growing. The "golden rule" for P.R. is clarity and I don't think there's anything here from BP's executives that gives people confidence."
Putting a spotlight on the uncertainty surrounding BP's future and the aftermath of the oil spill, the company's shares have been pounded. Since the April 20 explosion at BP's deep-water rig in the Gulf of Mexico started gushing oil BP's stock has lost as much as 30% of its value. Things could get even worse tomorrow as the shares resume trading in London after the company's latest attempt to choke the spill, dubbed "Top kill," unexpectedly failed over the weekend.
Despite that dramatic US$55-billion drop in its market value, with so much uncertainty, BP's rivals aren't likely to be circling with a takeover in mind at this juncture, analysts said.
"We have no idea what the size of the liability is," said Phil Weiss, senior energy analyst with Argus Research. "I've heard estimates go as high as $20-billion and some think it will be even more. We also don't know what the full actions and sanctions from the U.S. government are going to be. There's so much uncertainty, I can't imagine anyone would want to take on that headache."
Another likely hurdle would be concerns of antitrust both here and in Europe, given the huge size of BP and its rivals.
If its competitors acquired some of BP's assets, rather than the whole company, the liability probably wouldn't follow. But analysts doubt BP is ready to go that route, noting that Exxon's brand was able to recover after the disaster that spilled 250,000 barrels of crude in Prince William Sound, Alaska, in 1989 and BP might do the same.
"Exxon has used that accident to find religion so to speak in terms of really cleaning up its act and running thins well," said Mr. Weiss. "That's really what BP needs to do here."
BP has been beset by fresh headlines each day that have revealed shoddy management practices that perhaps led to the explosion of the oil rig – a stark contrast to the image BP sought to paint of itself as one of the most socially and environmentally responsible large oil companies on the planet.
It hasn't helped that the Gulf of Mexico spill is the third major environmental and safety disaster the company has had over the last six years. In 2005, its refinery in Texas City exploded, killing 15 people and injuring dozens more. In 2006, a corroded BP pipeline in Alaska led to the worst oil spill in the history of that state's oil rich North Slope.
BP has being very aggressive about addressing the latest catastrophe, spending as much as US$930-billion, including claims and federal costs, on the spill, according to an estimate from the company in Friday.
"The company has certainly spared no expense," said Pavel Molchanov, an energy analyst with Raymond James. "They've waived their right to a liability cap and said they would cover all private sector claims."
Nonetheless, BP has a tough road ahead, he added.
"It took BP years to repair its image after the [2005] Texas City explosion ... Clearly what's happened here is much more severe."
jwhitman@nationalpost.com
Read more: http://www.nationalpost.com/news/world/story.html?id=3089909#ixzz0pSYIjDlp
Janet Whitman, Financial Post
Published: Sunday, May 30, 2010
A sign by the side of the road near Grand Isle, Louisiana. The BP brand has suffered damage due to the company's failure to contain oil leaking from a well into the Gulf of Mexico.
NEW YORK – After BP PLC failed once again to plug the worst oil spill in U.S. history, the British corporate giant faces what could be an even bigger challenge: justifying its continued existence.
BP's brand is by no means damaged beyond repair at this stage, but as things worsen at the disaster in the Gulf of Mexico some observers are saying the company would be better off selling itself or many of its prized assets to its rivals.
"A crisis like this can break a company," said Ronn Torossian, chief executive of New York-based P.R. firm 5WPR. "BP is clearly in a lot of trouble. It's too soon to know whether the company can recover, but the P.R. problem keeps growing. The "golden rule" for P.R. is clarity and I don't think there's anything here from BP's executives that gives people confidence."
Putting a spotlight on the uncertainty surrounding BP's future and the aftermath of the oil spill, the company's shares have been pounded. Since the April 20 explosion at BP's deep-water rig in the Gulf of Mexico started gushing oil BP's stock has lost as much as 30% of its value. Things could get even worse tomorrow as the shares resume trading in London after the company's latest attempt to choke the spill, dubbed "Top kill," unexpectedly failed over the weekend.
Despite that dramatic US$55-billion drop in its market value, with so much uncertainty, BP's rivals aren't likely to be circling with a takeover in mind at this juncture, analysts said.
"We have no idea what the size of the liability is," said Phil Weiss, senior energy analyst with Argus Research. "I've heard estimates go as high as $20-billion and some think it will be even more. We also don't know what the full actions and sanctions from the U.S. government are going to be. There's so much uncertainty, I can't imagine anyone would want to take on that headache."
Another likely hurdle would be concerns of antitrust both here and in Europe, given the huge size of BP and its rivals.
If its competitors acquired some of BP's assets, rather than the whole company, the liability probably wouldn't follow. But analysts doubt BP is ready to go that route, noting that Exxon's brand was able to recover after the disaster that spilled 250,000 barrels of crude in Prince William Sound, Alaska, in 1989 and BP might do the same.
"Exxon has used that accident to find religion so to speak in terms of really cleaning up its act and running thins well," said Mr. Weiss. "That's really what BP needs to do here."
BP has been beset by fresh headlines each day that have revealed shoddy management practices that perhaps led to the explosion of the oil rig – a stark contrast to the image BP sought to paint of itself as one of the most socially and environmentally responsible large oil companies on the planet.
It hasn't helped that the Gulf of Mexico spill is the third major environmental and safety disaster the company has had over the last six years. In 2005, its refinery in Texas City exploded, killing 15 people and injuring dozens more. In 2006, a corroded BP pipeline in Alaska led to the worst oil spill in the history of that state's oil rich North Slope.
BP has being very aggressive about addressing the latest catastrophe, spending as much as US$930-billion, including claims and federal costs, on the spill, according to an estimate from the company in Friday.
"The company has certainly spared no expense," said Pavel Molchanov, an energy analyst with Raymond James. "They've waived their right to a liability cap and said they would cover all private sector claims."
Nonetheless, BP has a tough road ahead, he added.
"It took BP years to repair its image after the [2005] Texas City explosion ... Clearly what's happened here is much more severe."
jwhitman@nationalpost.com
Read more: http://www.nationalpost.com/news/world/story.html?id=3089909#ixzz0pSYIjDlp
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