BP finally plugs Gulf spill - as clean-up costs hit $9.5bn

The flow of oil is finally stemmed. But new CEO Bob Dudley has his work cut out to rebuild the company's reputation.

by Emma Haslett
Last Updated: 19 Oct 2010
Five months after the explosion in the Gulf of Mexico that has done so much damage to BP, the Macondo oil well has finally been sealed: according to US coast guard admiral Thad Allen, it's now ‘effectively dead’. Sadly for BP, this won't be the end of the story: it's still shelling out millions in compensation every day (even more so now the US is in charge of pay-outs), while the reputational damage will be with it for many years to come. On the other hand, this is undoubtedly an important milestone. And as far as shareholders are concerned, there's an increasing sense that things aren't looking as bad as they might have been...

It's been 153 days since the explosion at the Deepwater Horizon rig, which killed 11 workers and may end up changing the face of the oil industry. BP itself is now worth about $45bn less than it was before the blow-out (and that's only after a recent recovery). Shareholders also saw their dividend suspended for the first time in 18 years. But with the well plugged, a new CEO, and a less severe environmental impact than originally expected (apparently 75% of the oil has already broken up, according to one - albeit contentious - study), things do seem to be looking up slightly.

That's also true of the clean-up bill, which BP said today had now increased to $9.5bn. Apparently its rate of payouts has soared since the White House took control of compensation payouts; having forced BP to put the vast sum of $20bn in an escrow account, its appointee Kenneth Feinberg is now reportedly shelling out some £12.5m a day. On the other hand, even at this rate it will take a while to burn through $20bn; outgoing boss Tony Hayward is now suggesting the total cost may turn out to be a lot lower - and certainly lower than the astronomical sums some were suggesting a few months ago. Though it all depends on how the liability is ultimately assigned, of course.

Either way, the industry as a whole will feel the impact of this spill for years to come. The US government, which once prided itself on a softly softly approach, is under pressure to crack down on the big oil companies, and stricter drilling rules are likely before too long. As a pre-emptive strike, Exxon Mobil and Shell clubbed together in July to invest $1bn into setting up a new rapid-response system to contain deep-water oil spills. At the time, BP had more pressing concerns; at least now the well is sealed, it can spend a bit more time thinking about its longer term response.

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