April 30th, 2010
04:46 PM GMT
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A major oil spill in the Gulf of Mexico is expected to cause substantial environmental damage along the Florida coastline. Here CNN's Jim Boulden explains the circumstances behind the leak and the consequences for oil giant BP as efforts to limit the disaster get underway.

What caused the oil spill?
It seems workers on the Transocean Deepwater Horizon drilling rig (not owned by BP) were attempting to cap this new exploratory well when it suffered a "blow" causing the fire and sinking of the rig and the rupture of the line which brings extracted oil to the shore. Investigators will want to see what caused the explosion.

What are BP's offshore operations?
BP took over two big American oil companies in the 1990's, ARCO and AMOCO which gives BP access to many U.S. oil fields and refineries. There has been a slew of new oil and gas finds in the Gulf of Mexico in deep water. BP, like many of its competitors, is drilling exploration wells there to gauge the oil and gas potential. The well, known as Mississippi Canyon (MC) Block 252, is in the 'Macondo prospect'. The well in question is 65 percent owned by BP and has other oil companies as minority partners. It’s the norm these days for competitors to invest in these speculative wells.

Will BP have to foot the bill for the clean up?
BP CEO Tony Hayward was quoted on Friday as saying BP will take full responsibility for the spill and that they will honor "legitimate" claims for compensation. Then there are all the lawsuits filed and to be filed and compensation for the families of the dead. BP says moves to clean all this up is costing the owners of MC252 $6mn a day. U.S. law also states that oil companies have to pay for the use of help from the U.S. military. The total cost to BP is unknown as its not clear how long the situation will last.

Will anyone face legal action over the spill?
 This is the United States after all.

What effect has it had on BP's share price?
 BP shares are like an oil tanker most days – they don't move much and tend to trend with the oil price. But BP shares have been falling for days and at last count the company's shares have lost some 8 percent this week.

Why does something like this impact on share price?
BP may have to spend billions of dollars to make this right. Also, BP could cut its very generous dividend to preserve cash, if it comes to that. The Texas City Refinery fire in 2005 has cost BP some $1.5bn and counting.

Will it have an impact on BP's profits?
 This was not a working well, so BP will not lose any amount of oil and gas in its portfolio. But at some point it will have to"'book" the costs of all this and that will have an impact on its bottom line. Having said that, BP earns $5-7 billion from "ongoing activities" EVERY quarter ($27.7 billion in total for 2009). It had a $5.5 billion "replacement cost" profit in Q1 2010. It can afford this.

Filed under: Business

soundoff (25 Responses)
  1. Lin

    Why don't they set off a huge bomb on the sea floor that will
    collapse the shaft the oil is coming through. The military should
    have something that will penetrate the sea floor a few feet before
    So far, they have done nothing. This surely can't make this mess any
    Contact me when this works and I will bill BP for my consulting fee.

    April 30, 2010 at 5:15 pm |
  2. Joseph, II

    It couldn't have happend to a better Oil Comany. ;)

    April 30, 2010 at 5:29 pm |
  3. lisaweyn

    It is very important to preserve the environment. The oil spilage could have a devastating impact on local jobs, such fishery.

    April 30, 2010 at 6:10 pm |
  4. Sharon Grier

    Is it possible to set up tall booms around the leaking well and then, as it rises to the top of the water, pump out the oil to a tanker? This would stop any additional oil from getting loose in the water.

    April 30, 2010 at 6:43 pm |
  5. William Marlowe

    The oil slick is 620 square miles as of yesterday and is spewing 5,000 barrels (not gallons) a day and won't be able to be stopped from leaking for possibly weeks if not months;

    This could kill every water born creature on the coast of Texas, Loisiana, Mississippi, Alabama and Florida and could have a long term financial loss greater then what it cost the U.S. for 2 wars for the lat 9 years...

    How long do you think BP will be able to survuve before declaring bankruptcy?

    Is Goldman Sachs shorting your stock yet?

    April 30, 2010 at 7:18 pm |
  6. Roger DiPaolo

    Oil destroys our environment when we burn it and pump it into our atmosphere. Oil kills when we spill it into the ocean.


    We need to get off of fossil fuels immediately and implement alternative energy solutions that don't involve toxic substances such as petroleum.

    Only the greediest, coldest, and most calloused human beings could still be pro-fossil fuels given all of the damage to our planet that they cause.

    Anyone who believes that offshore drilling should continue needs to go take a swim in the Gulf of Mexico....

    April 30, 2010 at 7:31 pm |
  7. Mark Scarbrough

    Anyone who believes that banning all offshore drilling and production would not cause worldwide famine, lawlessness, and chaos should sit in the cold and dark fantasy-land that they have created in their minds.

    The entire world is voraciously addicted to energy, of which fossil fuels are the number one source. The men and women who work to ensure our access to energy and fuel deserve our greatest respect, as we support their efforts to quickly resolve the catastrophic situation.

    April 30, 2010 at 8:29 pm |
  8. Smith in Oregon

    As news from the horrific Burn Pits in Afghanistan and Iraqi US Military bases comes to America along with hundreds if not thousands of possibly pulmonary disabled soldiers, it is not surprising to learn that Bush-Cheney's pal's at Halliburton are the contractors and providers of that severe Health Problem.

    And just when America thought they could turn the page on the horrific Republican administration led formerly by Bush-Cheney, Halliburton KBR rears it's ugly image once again in being implicated with the horrendous spreading heavy crude Oil spill in the Gulf of Mexico.

    More than two dozen class action lawsuits have already been filed after the explosion against BP PLC, the British company that leased the Deepwater Horizon rig, against the rig's owner, Transocean Ltd. and against Halliburton.

    It seems Halliburton was responsible for cementing the drill pipe down in the deep sea well head several hours before the explosion and rupture of that same area occurred.

    Cement is used at two stages of the deep-water drilling process. It is used to fill gaps between the well pipe and the hole drilled into the seabed so as to prevent any seepage of oil and gas. And it is used to temporarily plug an exploration hole before production begins. At the time of the accident, the Halliburton statement said, "well operations had not yet reached the point requiring the placement of the final cement plug which would enable the planned temporary abandonment of the well."

    BP has their spin misters stating 3 Billion dollars in cleanup costs could be spent. However, 20 BILLION dollars per year is generated by commercial fishery's in Louisiana, Mississippi and Florida in those impacted areas which could be shut down entirely for DECADES.

    That would push the cost to over 200 BILLION Dollars plus 1 Million direct and indirect American Jobs LOST.

    Folks, the true full cost of burning and using Fossil Fuel is not cheap, it is far more expensive when obtained and used responsibly.

    May 1, 2010 at 6:28 pm |
  9. alan

    GoldmanSacks will be shorting more shares of BP & RIG at the market open on monday,
    so I am going to short also.
    the daily costs of this mess rose to $8,222,222.22 per day.
    When the oil hits shore this amount will double, then triple, and, if enough oil hits shore-quadruple.
    bye-bye earnings.

    May 3, 2010 at 2:44 am |
  10. Roger DiPaolo

    Mark Scarbrough said:

    "Anyone who believes that banning all offshore drilling and production would not cause worldwide famine, lawlessness, and chaos should sit in the cold and dark fantasy-land that they have created in their minds."

    Nice sounding pro-oil propaganda Mark. According to you our civilization will end if we move off of fossil fuels. Bull S#!t.

    If we continue of fossil fuels there will be no world left to argue over. Oil is a bad fuel, and we all know why. Oil is not the only alternative, so why do people like Mark speak like it is, because the Oil Companies have the power in this society and they care more about staying rich and in power than they do about humanity's future.

    Shame on you Mr. Scarbrough for caring more about oil jobs than the future that we will leave our children!!!!!

    Persons like myself have a vision for a fully-powered alternative energy future that will give our children a hopeful future, not Mr. Scarbrough's fantasy doomsday scenario. Fear-mongering is the tactic dejour for the greedy these days – but it won't work with me Mark.

    Why do people like Mr. Scarbrough continue to defend oil, follow the money – same as it always was.......

    Obviously there are still those who would gladly sell out the world's future for a few bucks now – like Mr. Scarbrough.

    Roger DiPaolo
    Anti-Oil, pro-clean energy, no apologies. Period.

    May 3, 2010 at 2:07 pm |
  11. David Begum

    the oil spill in Mexico would surely be one of the greatest environmental disasters for this year.~~,

    May 5, 2010 at 7:30 am |
  12. wally herschell

    I live in the UK and don't understand why BP should shoulder all the blame and costs.

    It was leasing the rig from an american company and various other contractors were american countries.

    May 6, 2010 at 11:30 pm |
  13. Smith in Oregon

    In nearly ALL deep sea Oil rig explosions, the cause was found to be improper injection of cement into the well casing.

    Dick Cheney's former employer and best friend 'Haliburton' was injecting cement into the well casing at the TIME THE RIG EXPLODED.

    Bush-Cheney are entirely responsible during their time in office for creating the exception of deep sea exploratory well heads to not be mandated to have the standard multiple well cut off safety valves.

    Bush-Cheney and their buddies at Haliburton figure in very prominently in their parts in creating this huge disaster in the Gulf of Mexico region.

    May 7, 2010 at 11:49 pm |
  14. Smith in Oregon

    It is entirely refreshing given the horrific heavy crude Oil spill gushing in the once pristine Gulf of Mexico that Media and Public discussion has turned to the huge ongoing grievous harm that Petrol-Chemicals have done to ALL Americans and ALL humans living and breathing on earth.

    For many years I have complained sometimes loudly that 'we' are being bathed in carcinogenic chemicals in the air and in our food as a result of Big Oil, Big Coal and Big on burning fossil fuels.

    These carcinogenic chemicals cause a wide range of diseases which impact all humanity on earth and cost Americans an enormous amount on resulting Health Care just dealing with those suffering directly and indirectly from chronic exposure to Petro-Chemicals.

    How many millions were chronically exposed and poisoned by LEAD when Big Oil placed Lead in Gasoline for decades? Everyone knew blackberry's and fruit that grew along the roads in America were heavily contaminated with LEAD.

    Was Big Oil sued and forced to pay for millions of infants and adults suffering from chronic LEAD poisoning? Of course not, they owned the courts and most of the Republican lawmakers.

    How many millions were chronically exposed and poisoned by Wood Alcohol which former President Big Oil Bush sr. ordered to add to Gasoline? Wood Alcohol is a known carcinogen and a strong poison in aquifers and ground water across America became contaminated with Wood Alcohol as a result.

    Was Big Oil sued and forced to pay for millions of infants and adults suffering from Wood Alcohol poisoning? Of course not, they owned the courts and most of the Republican lawmakers.

    Imagine the same Republican lawmakers entirely outlawing and banning many recreational drugs whose LD50 toxicity is so large it is practically impossible to ingest a life threatening amount, AND yet those same corrupt lawmakers and jurists declare it is fine for their Big Oil and Big Coal primary donors to pour, spew and produce enormous amounts of extremely toxic chemicals which end up in your food, in the air you breath and in the water YOU drink!

    The current system of vastly corrupt laws and regulations places the burden on the government to prove that a chemical is unsafe before it can removed from the market. The standards are so high, the government has been unable to ban chemicals such as asbestos, a widely recognized carcinogen that is prohibited in many other countries.

    About 80,000 chemicals are in commercial use in the United States, but federal regulators have assessed only about 200 for safety.

    Big Pharma's products that are being flushed down the toilets across America and around the world are poisoning everyone downstream whose local and city water supply's depend on that fresh water.

    Mother's milk is increasingly being ever more contaminated with dangerous Petro-Chemical's. For decades Big Oil and Big Coal have been protected from laws and regulations which would force them to deal with the results of their products. Force them to pay for the damage they cause and the diseases that result.

    Mothers across America and around the world should stand up against Big Oil and Big Coal and demand they and their toxic chemicals be held entirely accountable for any and all ill effects they produce and contribute to the infant and human condition.

    May 9, 2010 at 11:30 pm |


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