London, May 01: A giant oil slick spreading along the US Gulf coast threatens huge damage to the name of BP, one of the world’s biggest companies, as well as a multi-billion dollar hole in its accounts, analysts said Friday.
An accident fast turning into the worst oil spill in US history will throw up obstacles to BP’s operations in one of the key world oil zones and a new look at the environmental threat from the industry, analysts said.
“Even if not directly liable for the cause, this will impact BP’s overall credibility and ability to do business as effectively in the aftermath,” Peter Hutton, an oil analyst at NCB Stockbrokers, told AFP.
Up to 200,000 gallons of oil a day have been spewing into the Gulf of Mexico since a deepwater oil rig operated by BP exploded and sank last week.
The oil hit the Louisiana coast on Friday just before the British energy giant announced that it was “taking full responsibility” and would pay for “legitimate claims” arising from the disaster.
The US government has already frozen new offshore drilling while the military and oil industry engineers seek ways to tackle the slick which is being blown toward Florida and other states.
BP has been aghast at this latest accident to hit a part of its US operation, which accounts for a huge part of the 6.08 billion dollar (4.5 billion euro) first quarter profits announced Tuesday — up 135 percent on the same period in 2009.
Although it is too early to estimate the fallout from the Deepwater Horizon rig disaster, analysts said BP could have access to oil fields limited and tougher regulation, which would hurt the company and the entire oil sector.
“This is very important from a reputational point of view … you want to be seen as a reliable partner by those governments that give you access,” said David Hart, an energy analyst at British broker Westhouse Securities.
More than cost and liability, “the bigger concern is what does this mean for BP’s operation in the Gulf of Mexico,” Hart said.
Fitch Ratings said that containing the slick and clean up costs could be as high as three billion dollars (2.2 billion Euros).
BP produces from over 20 gas and oil fields in the gulf.
Analysts agreed that the company’s response to the catastrophe has been rapid, but BP’s other accidents in North America makes it more vulnerable to criticism.
In 2005, an explosion at a BP refinery in Texas caused 15 deaths and more than 170 injuries. In 2006 there were two major oil spills at its fields in Alaska.
“They’ve had a few missteps and I think in their view they would have liked a few years of clear air,” Hart said.
“BP has responded very, very quickly to the incident,” Hutton said, adding that for the company, the Gulf is “a very important area and they are committed to it.”
US President Barack Obama has said that “BP is ultimately responsible for funding the cost of response and clean-up operations.” And the company has vowed to take all possible action to limit the impact.
“We are going to do everything we can — firstly, to control the well; secondly, to ensure there is no serious environmental consequence; and thirdly, to understand how this has occurred and ensure that it never occurs again,” BP chief executive Tony Hayward said in a message to staff.
After the Texas accident, an independent panel produced a hefty report on the safety of its US refineries, published in January 2007.
The 374-page report found that BP failed to “fully and comprehensively implement across BP’s US refineries the lessons from previous serious accidents.”
Shares in the company have plunged, but analysts said the market reaction was excessive. “The hit on BP’s shares looks overdone” said Bank of America Merrill Lynch in a research note.
“We believe newsflow from Gulf of Mexico is terrible and may get worse, but the financial impacts are overstated,” NCB said.
–Agencies