Transocean semi fire in BP's GoM operations

It just goes on and on ...

I wouldn't buy BP I'd buy Canadian Oil Sands and Suncor. "Cleaning up" the tar sands should be a walk in the park compared to this stuff.

The Pickens Plan might get some more attention too.

It will be interesting to see what happens.

In reply to emptyend, post #245

A bit more comment on this Hardy / Reliance story:-

Transocean rig problem halts India well
http://www.upstreamonline.com/live/article216010.ece

RIL suspends drilling with Transocean equipment
http://beta.profit.ndtv.com/news/show/ril-suspends-drilling-with-transocean-equipment-56781

Trouble for Transocean: RIL dumps KG-basin rig
http://www.hindustantimes.com/Trouble-for-Transocean-RIL-dumps-KG-basin-rig/Article1-548919.aspx

Concurring with much of ee's list of pertinent points in post 233:

I think BP as a 'crisis' play is now too close to being a genuine crisis without a correspondingly sufficient drop in share price (share price drop relative to Shell's over the same period since the explosion, being what I'd take as the real value the market has put on the cost, seems to reflect the likely cash costs of claims but not the potentially more significant second order costs) - this may well change when the market re-opens.

Given the importance of the US to it as a business (about a third altogether) and the view of the Obama Administration that BP will, post-clean up, be dispensable to the US, I'm not comfortable with the assumption that the dividend is safe. If it is preserved at all costs at the behest of institutional shareholders, isn't there a danger of the debt situation deteriorating and increasing the risk to future dividends?

The fact that Transocean may be on the hook for a large part of the actual liability will be small comfort to BP if its ability to trade profitably in the US is curtailed for a generation (Union Carbide exited India 10 years after the Bhopal incident - I don't expect BP to exit the world's largest market for hydrocarbons but to assume that business-as-usual will resume any time soon is optimistic to say the least).

So far, my view is that the Obama Administration rhetoric has been the over-reaction (unsurprising given his hard left-wing base & that this is the only possibility he has of recovering some support in an important election year that looked like being nothing but disastrous for the Democrats) but not the share price which is why I've remained a shareholder for the time being.

With the top-kill failure, I will now sell out on Tuesday if the price fall is only moderate relative to Shell's movement; will probably not be a buyer of further shares unless real carnage ensues; most of all I'm hoping not to be stuck in no man's land with a fall that does somewhat reflect the poorer overall outlook yet isn't big enough to be an over-reaction opportunity.

We'll see soon enough.

Regarding the Rachel Maddow / MSNBC video link (I'd also note that MSNBC is the most partisanly pro-Democratic Party of the US networks) provided by blackgold00, I wonder whether the point about no technological advances from Big Oil to deal with problems that now occur in 5000ft water depths rather than 200ft water depths, is as valid as the fact that over the 30 years of drilling at ever-lower depths there have been so few such incidents?

I agree that her points are pertinent after the fact of the explosion, but her demonisation of the oil industry is deeply misleading.

Surely Big Oil has been doing some things right and has invested huge sums of money in being able to drill overwhelmingly for the most part safely a mile below sea levels?

Of course that doesn't make for good left-wing rhetoric about the evils of drilling, nor does the perspective offered by this well-written article:

http://news.bbc.co.uk/1/hi/8664684.stm

from the Oil drum, some interesting comments re; ( Heading Out's Thoughts on the Press Conference)

"He noted that their inability to stop the well “scares everybody” but is reasonably confident (no success percentage estimates) that this will collect the majority of the oil and gas. Because they do not know the flow path of the oil below the seabed, it is difficult to estimate what is actually going on in terms of oil path below the BOP. Thus they are, again, trying something that has never been done before, but expect, based on the RIT, that it will work."

Is he saying the well could be damaged below the BOP and that the oil could be leaking out though natural fissures in the rocks?

http://www.theoildrum.com/node/6531

In reply to blackgold00, post #250

Is he saying the well could be damaged below the BOP and that the oil could be leaking out though natural fissures in the rocks?

No, as far as I know the flow paths are still confined within the casings run as part of the original drilling programme and out of the inside of the BOP. The difficulty for BP is that the paths of the oil and gas coming to the surface are now believed to be from between these casings (the annular section) and possibly up through the last casing (even though I understand a cement plug was set - might be wrong here too many conflicting reports) it was for this reason that BP only gave the top kill a lower chance of success as they were never sure just where the kill fluids were going to end up.

"He noted that their inability to stop the well “scares everybody”

Interesting comment. Reading some of the comments from the 'Oil Drum' really scares me.

In reply to emptyend, post #233

With regard to the direct costs, I feel quite confident you are right. HOWEVER, that isn't all there is to worry about. There are a succession of articles in today's FT that explain why BP may not be the "slam dunk recovery scenario" that one might hope.

Apart from anything else, events over the weekend have brought me the same conclusion. Even though I was quietly congratulating myself for my acute investing skill at the end of last week in finding the bottom...

 As far as the response is concerned, my understanding is that two wells are being drilled just in case, er, SW10's Law affects one well - though I don't believe that's the term in use. But I think the relief well approach has to be the right one now, despite the extraordinary remarks by Simmons amongst others, which I have commented on in another thread. The MSNBC report comparing 'Then and Now' is pretty interesting - though fairly simplistic in its conclusions. To say that risks are no better managed now than they were 30 years ago is overly-facile, but perhaps that's unsurprising when the conclusion also includes the phrase (my bold)

making themselves the most profitable industry the universe has ever seen - and I'm not exaggerating.

Sure.

SW10

In reply to SW10Chap, post #252

To say that risks are no better managed now than they were 30 years ago is overly-facile, but perhaps that's unsurprising when the conclusion also includes the phrase (my bold)

making themselves the most profitable industry the universe has ever seen - and I'm not exaggerating.

......mmmm....... I believe that Uranus Media Services is pretty profitable, thanks to their flagship galactic broadcast news programme "Talking out of Uranus"  ;-)

I thought the "Then and Now" comparison was a pretty good one, if obviously simplistic. The main message I took from it is that, in time, people tend to "forget" events that seem cataclysmic at the time. Unfortunately the BP incident has yet to appear in the rear-view mirror, so it is a long way off that position.....and we appear to have the unfortunate situation that unless the next approach works and the pipe can be cut and effectively capped (haven't seen a CoS for that as yet) then it'll be down to the relief wells. I haven't yet seen anyone making the point that successful relief wells will require a three-dimensional accuracy to within about 10 centimetres "flying blind" at a range of a couple of miles.......so this may yet be a situation where the squared version of SW10's Law comes into play?

ee

I haven't yet seen anyone making the point that successful relief wells will require a three-dimensional accuracy to within about 10 centimetres "flying blind" at a range of a couple of miles.....  [ee]

Tsk tsk. Pay more attention at the back there, who wrote this just a week after the fire?

I'm surprised and intrigued by the idea of the interception well. This will mean that someone is going to have to hit a target perhaps 8" across, steering a drillpipe several thousand feet underground and from a mile or two away. Now, I've seen directional drillers do some astounding things, but this would be an extraordinary achievement.

:-)

so this may yet be a situation where the squared version of SW10's Law comes into play? [ee]

I think you could be right. And if we just go back to that post again:

Of course, BP are saying that it will take a long time, but even without a very hefty dose of SW10's Law I can only imagine that it's going to take quite a few shots. Of course, it may be that they don't have to intersect the well itself (though that's the language they've been using) and they may be able to get the kill fluids in through any permeable rock that may be there.

SW10

my view is that the Obama Administration rhetoric has been over-reaction

They can say what they like, but the only company in the world who are allowed to drill deepwater wells in the US is, er, BP.

The Secretary further recommends an immediate halt to drilling operations on the 33 permitted wells, not including the relief wells currently being drilled by BP, that are currently being drilled using floating rigs in the Gulf of Mexico.

Department of the Interior document [PDF] 27 May 2010.

:-)

SW10

In reply to SW10Chap, post #254

Tsk tsk. Pay more attention at the back there, who wrote this just a week after the fire?

Sorry...should have made clear that I was talking about the legions of commentators on the media, rather than anyone on here who knows what they are talking about!   ;-)

To be clear - whilst it may be obvious to you, me and dozens of other people here that the drilling operation for the relief wells is a "big ask", it doesn't yet seem to have dawned on the US press- let alone the US public!!!

If I were BP I would be making sure they understood the exact nature of the challenge well before August - because there is no doubt that a series of misses would be extremely poorly received!

rgds

ee

http://www.timesonline.co.uk/tol/news/environment/article7141440.ece

More than £6 billion was wiped from the market value of BP last night after the oil giant’s latest failure to control its oil spill in the Gulf of Mexico provoked mounting anger in the US.

With markets in London closed, BP’s German-listed shares plunged almost 8 per cent to €5.39 (£4.56) after the US Government warned that the leak from the blown-out Macondo well may not be stopped until a relief well can be drilled in August.

The share price collapse was equivalent to a slide in BP’s UK-listed market value of £6.5 billion, from £93 billion on Friday to £86.5 billion.

Shares down 12% in early London trading! They aren't hanging around in discounting the weekend's news!

Feels like too far too fast to me, given that there is still the riser solution in prospect - though if that fails and the flow increases (as likely in a failure scenario?) then who knows?

Just to put things in perspective, and offer a counterpoint to the shrieks of the American public, whilst the present problem is as bad as the Exxon Valdez in terms of the amounts spilled, it is apparently still only around one third the size of the spill resulting from the Torrey Canyon sinking in 1967......

....the point being that the Torrey Canyon went down in the UK equivalent (in terms of environment quality) of the Gulf coast.

So...from the viewpoint of environmental impact (especially given the extensive dispersal of the oil in the Gulf due to the depth and disperants used) the longevity of the environmental problems in the US may not be as long as some assume (unless the next operation fails - in which case who knows?). From a shareholder standpoint, the interesting issue will be who is responsible for loss of business to businesses around the Gulf Coast? Will it be BP - even if there is no oil in the vicinity! - or will it be the scaremongers in the press and government who have perhaps been overhyping the geographical extent of the problem?

The market's answer seems to be "sell first and ask such questions later" - but the share price (430p) now seems to me to be in territory that is overdoing that approach......

ee

I make that nearly £40bn wiped off Mkt Cap since the explosion = a third = full contribution of US to BP's valuation. That's the carnage I was thinking of, and at 429.2p have now bought as many shares as I already held.

Interior Department document linked to by SW10 makes for far more reasoned discussion than the Administration's rhetoric and gives me some comfort in buying at these levels.

Fascinating thread, albeit I've only read the last 40 posts.

Whilst lots of posts touch on it, I am slightly surprised that there has not been any explicit discussion around the issue of reputation. Whether its deserved or not, BP's reputation is now completely trashed in the minds of many people, particularly in the US.

I just can't see much justification globally for any politician to put future work the way of BP and, if they get the chance, I can see some very flimsy excuses being used to remove BP. from work they are currently undertaking to a perfectly satisfactory standard.

Even at £4 this looks far from a bargain to me. Indeed I wouldn't want to go near BP shares until they have stopped the leak and displayed to all and sundry that they behaved to the highest standards before and throughout this incident.

Cheers, Martin

P.S. It has to be said that Tony Hayward has been particularly unfortunate with this because AIUI, since he became CE, he has implemented a massive safety drive within the company.

I have also bought in at 429p, not a whole lot (1500 shares) but enough given the risk of SP going to 400p and below. I may add more if it reaches those levels and the "story" today remain the same. Even if BP cut divi in half (50%) it is still a >5%.

JPGH

Well just thought I'd pop my head up to show I'm still alive! My avearge buy price is 539p which seem a long way away now. Obviously, things have not gone my way but I'm going to hang in for a bit longer anyway.

At this point there seems like quite a few things that can go right for them and a lot of the bad news is in the price. I was making that argument at higher prices too of course.

It is strange how a lot of focus has been pushed onto BP as if they did something wrong. I'm more of the opinion that it could happen to any driller and at least from an environmental perspective BP have the resources to best deal with the problems.

Haywood is doing a great job actually and I'd be sorry to see him leave.

I'd be interested to know from ee what impact this sort of thing would have on a company like Soco if it happened to them. I assume with their sort of market cap they'd be toast.

A lot of talk has been about the future impact to BP of all the second order effects after the well is plugged and the oiil is cleaned up. I feel that a lot of this will just get built into the price of oil. If it costs more to produce then producers will charge more. If a company is forced into drilling in 1mile of ocean then presumably the cost of the product will have to reflect this. Therefore, long term I can see BP absorbing this through higher.

Interesting times - not great for holders though.

Log

In reply to shanklin100, post #261

Hi Shanklin,

I am slightly surprised that there has not been any explicit discussion around the issue of reputation

 

You need to read back a bit more than 40 posts. ;0) [I think you'll find it's worth it - there is some excellent techical detail & commentary here].

Also added a bigger chunk to my holding this morning - that's three toes dipped in. If the latest attempt to cap the well also fails there is every chance that the SP will go lower - but conversely there may be a big bounce if the attempt succeeds. In the former case, I'll  probably add a few more, dependent on the nature of the failure and the extent of the concomitant drop. Another short term risk to the SP which may not be widely understood is that when the riser is sliced off, the flow rate is likely to increase, until the cap is put into place.

BP have a new video on the latest situation: http://bp.concerts.com/gom/kentwellstechupdatelong053110.htm

Cheers,

Mark

In reply to loglorry, post #263

Hi log,

It is strange how a lot of focus has been pushed onto BP as if they did something wrong. I'm more of the opinion that it could happen to any driller

 

I tend to agree. However, much as we may sympathise with BP's predicament and what seems to me their diligent efforts to stop the spill and remedy the environmental impact, investors should not let those sympathies influence their investment decisions. Reputationally, it doesn't help that BP were already seen as "bad boys" in the US, following the Texas City and Prudhoe Bay accidents.  It is only once BP have actually staunched the flow that it will start to become clearer what the full extent of the damage to the company is.

Unfortunately, ISTM that it is a fact of (engineering) life that when any new technology is deployed, it is only when a serious accident involving that technology occurs that it becomes clear what precautionary measures need to be put in place alongside that technology. In the case of deepwater drilling, AIUI over 1,000 wells have been drilled to date without a serious accident. BP have been criticised for not having adequate plans in place to deal with an accident. Unfortunately it's only when you try out those plans in practice that you discover how inadequate they are.

IMO Obama has done exactly the right thing, imposing a 6 month moratorium of deepwater drilling, whilst this accident is investigated and analysed. It is ony once that work is complete that a determination can be made of exactly what addtional precautions, safety inspections and equipment certifications are necessary, given the (apparently) extreme consequences of an accident that we are now seeing. I would not be surprised if that moratorium had to be extended because ISTM that it may take longer than that to do the full investigation, analysis and remadial actions necessary before deepwater drilling can be undertaken safely.

Couple of points re Soco: firstly, dealing with accidents in shallow water is a much better understood process and much easier to undertake. Secondly, unlike BP, I would expect that Soco would be well-insured against such an accident. Clearly, though, that would not prevent a big selloff on news of such an accident. No matter how "solid" a company you invest in, the possibility of "an unknown unknown" (or even a "known unknown"), should make you wary of being overexposed.

Regards,

Mark