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Spill Will Cost BP At Least 1 Year Of Profits

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Spill Will Cost BP At Least 1 Year Of Profits

Business

Spill Will Cost BP At Least 1 Year Of Profits

Spill Will Cost BP At Least 1 Year Of Profits

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Efforts to stop the flow of oil in the Gulf of Mexico have been unsuccessful, making the spill the largest in U.S. history. Holly Pattenden, of the risk analysis firm Business Monitor International, tells Renee Montagne the cleanup and other issues will cost BP at least $20 billion.

RENEE MONTAGNE, host:

To talk to us about what the oil spill may mean for the future of BP, one of the world's largest oil companies, we're joined by Holly Pattenden. She's head of oil and gas for the risk analysis firm Business Monitor International. And she joins us from London.

Good morning.

Ms. HOLLY PATTENDEN (Business Monitor International): Good morning.

MONTAGNE: Let's begin with what this is going to cost BP.

Ms. PATTENDEN: Well, considering the combined amount of claims that BP's going to have to pay out, estimates range from around 12 to $20 billion in terms of the total cleanup costs and compensation claims that BP will have to pay.

When you look at the amount of value that's actually been wiped off BP's share prices, though, that's closer to $50 billion. So we can see that the market has overreacted in terms of the value that's been lost from BP, compared with its liability.

MONTAGNE: Twenty billion dollars or anything even in that neighborhood - huge amount of money - but is it going to be enough to cover the damages? I mean I'm thinking here about legal costs, things that can't even be tallied up quite at the moment.

Ms. PATTENDEN: Yeah. Well, there are going to be huge numbers of unforeseen costs. This is the working on the estimates at the moment, in terms of all the compensation claims that they're expecting to receive, from fishermen for loss of earnings and from other industries around the Louisiana area.

So they're estimating that that's what it's going to cost them. But if you compare that with BP's quarterly profits of about $6 billion, at the most it's going to cost them about a year's worth of profits.

MONTAGNE: What kind of effect might this spill have on regulations here in the U.S.?

Ms. PATTENDEN: Well, the first thing that we've seen is Obama getting rid of any plans to open up more federal waters to offshore drilling. They're going to have much stricter regulations offshore. I think the use of what are called acoustic sensors is probably going to be mandated, as it is currently in deepwater operations in Brazil and Norway.

We're also going to see insurance costs rise a lot. Most of the companies doing these kind of operations have to do self insurance anyway, because the external insurers won't take their risk on board. So, we're going to see the cost of self insurance rising an awful lot. And in general, we're going to see the costs of exploring and operating offshore increased to a great degree.

MONTAGNE: Let me put this in some perspective here. It's now the biggest oil spill in U.S. history, and if it isn't fixed until August, which is possible, it would pour out, by estimates, several million barrels of oil before it's finished. How does that compare with spills in other parts of the world?

Ms. PATTENDEN: Well, the worst spill ever in history was after the Gulf War in 1991, when the retreating Iraqi army deliberately sabotaged a number of oil wells in the Gulf. That resulted in a spill of around 11 million barrels. The second-worst oil spill, in the Gulf of Mexico, was the Ixtoc well in the Mexican area in the Gulf, which spilled about three and a half million barrels.

So, we could well see the Macondo disaster, if it carries on 'til August, vying up there - unlikely to get to 11 million barrels but becoming the second-worst oil spill in history and certainly the worst accidental oil spill in history.

MONTAGNE: And does it make a difference that it's in there the Gulf, you know, with a certain kind of ecology that it has?

Ms. PATTENDEN: Yes. I think the main problem in Louisiana is that the coastline is a very sensitive ecosystem of mangrove swamps. And unlike on a rocky shoreline, for example, in Alaska where the Exxon Valdez disaster happened; there, the shoreline can be cleaned relatively quickly by the action of the waves and by the ease by which the oil can be sent back out to sea and diluted.

In the mangrove swamps of Louisiana, that oil is going to circulate within internal currents within that system and its presence will still probably be felt in decades to come.

MONTAGNE: And though, the time we've been talking about this spill, it's being considered the deepest spill ever. But how many other oil wells are out there that are this deep?

Ms. PATTENDEN: In terms of more than 5,000 feet deep, there are 33 deepwater rigs at the moment in the U.S. Gulf of Mexico, which are drilling at that kind of depth. All of those have been ordered to cease drilling by President Obama while they reexamine the safety features onboard each of those rigs and in the seabed, as well.

So, that's about the level of rigs that are out there drilling that deep.

MONTAGNE: Is that what's happening right now then, that other oil companies are now, in fact, reexamining their deep wells?

Ms. PATTENDEN: Absolutely. Yes. They've been ordered to cease drilling in order to make sure that this kind of accident can't happen on any of the other rigs that are drilling at this kind of depth, and in order to test all the safety equipment that's already in place, which is designed to stop this kind of blowout occurring.

MONTAGNE: Thank you very much for joining us.

Ms. PATTENDEN: A pleasure.

MONTAGNE: Holly Pattenden heads the oil and gas division for the risk analysis firm Business Monitor International. She was speaking to us from London.

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