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Estimating The Cost Of The BP Oil Spill

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Estimating The Cost Of The BP Oil Spill


Estimating The Cost Of The BP Oil Spill

Estimating The Cost Of The BP Oil Spill

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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The cost of the BP oil spill is nearly impossible to estimate, given that there's little consensus about how much oil is spilling out, and when the leak might be contained. But NPR's Yuki Noguchi tries to hazard a guess based on the Gulf states' tourism and fishing revenues.


At this point, estimating the cost of the gulf spill is still very much a guessing game. After all, the oil is still gushing, and there's no telling when it might be stopped. BP has said it has spent nearly $1 billion so far on cleanup and other costs.

As NPR's Yuki Noguchi reports, that is almost certainly a small fraction of what the company will ultimately pay.

YUKI NOGUCHI: Almost anyone will tell you, hazarding a guess as to how much the spill might cost is very much a moving target.

Professor MARK BONN (Tourism, Florida State University): Once you have oil spewing out of the bottom of the floor of the ocean, anything can occur.

NOGUCHI: Mark Bonn is a professor who studies tourism at Florida State University.

Prof. BONN: We do know that preliminary estimates of cancellations are coming in at about 25 percent. And a lot others are calling day by day, to see what's going on.

NOGUCHI: Statewide, Florida tourism is a $60 billion business that employs a million people. That's not all in beach communities but depending how far the oil travels, Bonn says a large percentage of that business could be affected. What could be the biggest cost for BP is cleanup.

This week, BP chief executive Tony Hayward told several newspapers that even if current efforts to cap the well fail and it takes months to drill a relief well, cleanup costs would only reach $3 billion. Hayward's statement runs counter to most analysts' estimates that cleanup could cost tens of billions of dollars.

David Kotok, the chief investment officer at Cumberland Advisors, says it could go even higher than that, depending how far the ocean carries the oil.

Mr. DAVID KOTOK (Chief Investment Officer, Cumberland Advisors): If the slick and the damage continue to enlarge and get into the loop current, then the potential can grow towards a hundred billion. There are no limits. We have no idea.

NOGUCHI: Separate from the cleanup, there are the liabilities BP and the other companies involved with the rig might pay, not just to the rig workers or some of their families, but for the millions of people who are directly or indirectly affected by the spill. Most notably, this includes workers in the tourism and fishing industries. Some estimates put the Gulf Coast region's tourism industry at $20 billion a year. Fishing revenues are harder to quantify.

Louisianas seafood industry alone generates well over $2 billion annually. Sport fishing in those states is also an industry in the billions. Finally, BP will likely face a number of fines. If the Justice Department investigation reveals criminal wrongdoing, Cumberland's Kotok says BP's fines could get as high as $200 million per day of this spill.

Mr. KOTOK: I think BP has lost in many ways. I mean, financial loss, yes. Branding, yes. Image, yes.

NOGUCHI: And BP has also lost the confidence of many investors. The company has lost more than a third of its market value since the explosion of the rig in April. Much of that loss came earlier this week, after the company's top kill attempt failed to plug the leak over the Memorial Day weekend.

Matti Teittinen is a senior analyst for IHS Herold.

Mr. MATTI TEITTINEN (VP, Senior Equity Analyst, IHS Herold): A lot of people had hope in the top kill and when that didn't work, people started to realize, well, this could go on for another two months. You know, it's probably safer to overestimate things than underestimate, in a case like this.

NOGUCHI: Because BP is self-insured, meaning it has no outside insurance protection, it will shoulder the lion's share of all the costs. And that has raised some questions about whether BP survives as an independent company.

Some Wall Street analysts have suggested BP stock price is trading so low, it could become a takeover target. Others, including Kotok, believe BP has enough cash at this point to fund the various costs of the spill. But, Kotok adds, he believes no rational executive would consider buying a company that faces a bill that might end up totaling hundreds of billions of dollars.

Tomorrow, BP's Tony Hayward will try to answer some of those questions when he briefs investors on the cost of the spill.

Yuki Noguchi, NPR News, Washington.

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