BP’s Deepwater Horizon sparked criticism from regulators, investors, the public and media in the U.S. Yet many oil spills in the global oil & gas industry – before and after BP’s disaster – are largely overlooked in the U.S. and Europe.
BP’s Deepwater Horizon oil spill last year showed that environmental issues can create economic problems and cause significant financial losses. As a result of technical failures, it took 87 days to secure the well source and stop the leak. During this time, an estimated 4.9 million barrels were spilled into the Gulf (pg 226 National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling report).
BP’s share price fell by 52% in 50 days on the New York Stock Exchange, wiping $60 billion from its market value. This was also bad news for the UK investment funds as “BP’s UK dividends represent approximately one-seventh of all dividend payments in the UK and form the basis of many pension schemes”
The accident highlighted the technological difficulties of energy operations in deepwater. It also focused attention on the need to strengthen controls on drilling, corporate culture, safety and environmental practices and management if oil reserves in high-risk areas are to be exploited.
A National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling report highlighted oversights in the oil industry’s health and safety regulations, stating that “safety standards have increasingly failed to reflect ‘best industry practices’ and have instead expressed the ‘lowest common denominator’ – in other words, a standard that almost all operators could readily achieve.” It went on, “the inadequacies of the resulting federal standards are evident in the decisions that led to the Macondo well blowout.”
The Deepwater Horizon accident cost BP $41.3 billion in clean up, compensation and other costs, in addition to indirect adverse economic effects of reputational damage and lost customer confidence.
BP’s oil spill was just one of 79 “loss of well control accidents – when hydrocarbons flowed uncontrolled either underground or at the surface” reported in the U.S. Gulf of Mexico between 1996 and 2009, according to the National Commission.
It seems that the industry has yet to learn lessons from BP and other exploration and production companies. Just last week, Chevron was banned from drilling off the coast of Brazil following an oil spill. The accident is being investigated. The National Petroleum Agency (ANP) has also rejected Chevron’s request to drill a deeper well. “It said such drilling would “pose risks to the environment similar to those that occurred in the well where the spill occurred, but bigger and magnified by the greater depth.”
And earlier this month, “defects” in production and management at ConocoPhillips were blamed by the China’s State Oceanic Administration (SOA) for oil spills at an oilfield that it operates in the Bohai Bay off China’s northeast coast resulted from. The Administration plans to sue
ConocoPhillips, and ecological damage could lead to compensation claims running into billions of dollars. China looks set to strengthen pollution rules following the spills.
Environmental challenges and risks globally may be well worth taking into account.
Anastassia Johnson is head of corporate research for Trucost.