Dudley Faces Drill Fight as BP Says Goodbye Macondo

Robert Dudley, incoming CEO of BP Plc
Robert Dudley, incoming chief executive officer of BP Plc. Photographer: Graham Barclay/Bloomberg

The BP Plc relief well that killed the worst U.S. oil spill may be the last it drills in the Gulf of Mexico for some time.

Robert Dudley, the American who takes over as chief executive officer from Tony Hayward on Oct. 1, risks being shut out from the region where BP is the biggest producer as he deals with legal battles over blame for the spill. The London-based company, called “reckless” by President Barack Obama, will come under greater scrutiny than rivals from regulators when drilling resumes, analysts said.

A ban on deepwater wells lasts until the end of November and Congressional elections on Nov. 2 may intensify public pressure on BP after tens of thousands of job were lost in oil exploration, fishing and tourism. A bill passed by the House in July and stalled in the Senate would bar BP from new offshore leases because of its safety record.

“People are angry and elections are coming up,” said Christine Tiscareno, an equity research analyst at Standard & Poor’s in London. “There’s a good chance that the U.S. government will place some sort of sanction against BP in the Gulf, or will let them operate with certain restrictions.”

BP yesterday declared the Macondo well, which exploded on April 20, “effectively dead” after a successful pressure test of a new cement seal pumped through the relief well.

No crude or gas has leaked since BP capped Macondo from above on July 15. BP said yesterday it had spent $9.5 billion in the response and that approximately 25,200 personnel, more than 2,600 vessels and dozens of aircraft are engaged in the effort.

‘Important Milestone’

Sealing the well for good is “an important milestone, the end of a chapter” said Ivor Pether, an analyst at Royal London Asset Management, which holds $9.2 billion in securities and added to its BP shareholding during the crisis. “They can now start to scale back the considerable infrastructure resources around the well and devote their full attention to the cleanup and legal battles that lie ahead.”

BP shares have dropped 37 percent in London since the accident, wiping about 45 billion pounds ($70 billion) off the value of the company. The stock rose 2.1 percent to 411.35 pence at of 4:30 p.m. close of trading in London today.

BP faces about 400 lawsuits and set aside $32.2 billion in the second quarter to pay for the spill. A probe by U.S. Attorney General Eric Holder may lead to prosecution of the company or employees, suspension of well operating licenses and debarment from government contracts under U.S. pollution law, BP said July 27.

‘Legal Nightmare’

“The first phase of the nightmare is over,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. “But the legal nightmare could be even worse. The biggest unknown is going to be the penalty, and it’s critical for them to show they’re not the only guilty party.”

BP’s fine under the Clean Water Act could range from at least $1,100 per barrel to as much as $4,300 per barrel under the Clean Water Act if the company is found to be grossly negligent, which Duhaime’s Law Dictionary defines as acting in “reckless disregard of the consequences to the safety or property of others.”

With the government’s estimate of about 4.1 million barrels of oil spilled, a finding of gross negligence would push the fine to $17.6 billion under gross negligence versus $4.5 billion without.

Job Losses

Obama’s moratorium on deepwater drilling, which started May 28 and idled 33 rigs, may cost between 8,000 and 12,000 jobs, the government said last week. The administration initially estimated that as many as 23,247 would be lost, and BP agreed to pay $100 million into a fund to help laid-off workers.

The House passed a bill in July that included an amendment disqualifying from new offshore leases companies with safety violations greater than five times the industry average in the past seven years, or that have had more than 10 fatalities at exploration and production facilities in the same period. Eleven people died when Macondo exploded, sinking the Deepwater Horizon drilling rig.

“We are moving quickly and responsibly to raise the bar for the oil and gas industry’s safety and environmental practices to prevent this type of disaster from happening again,” Interior Department spokeswoman Kendra Barkoff said in an e-mailed response to questions.

For Dudley, keeping a grip on the Gulf of Mexico is key to earning enough to pay off BP’s obligations. The Gulf accounts for more than 10 percent of BP’s production, and before the accident the company planned six final investment decisions for the region this year.

“It’s going to be harder for everybody in the Gulf now,” Oppenheimer’s Gheit said. “There’s no sympathy for BP or the industry in general.”

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