Deepwater Horizon may cost BP $53.8 Billion – 43.1% of it’s current value

Image of the fire from the oil spill

Deepwater Horizon Spill in 2010. Photo: Gerald Herbert, AP.

11 Crew were lost in the explosion and fire on the Deepwater Horizon rig on April 20, 2010. In addition, roughly 5.2 million barrels of oil poured into the Gulf of Mexico during the 87 days between April 20, 2010 when the explosion occurred and July 15, 2010 when the well was capped.

BP, found guilty of “Gross Negligence” and “Willful Misconduct” in the Deepwater Horizon oil spill, (BBC, EcoWatch), has agreed to pay $18.7 Billion over the next 15 years (BP Press Release, Reuters) to settle various claims with the United States, the states of Florida, Alabama, Mississippi, Louisiana and Texas, and others.  This amounts to 14.8% of BP’s current market capitalization.

Pursuant to the agreements, BP will pay $1.1 Billion per year over the next 15 years. While the $18.7 Billion amounts to 14.8% of BP’s current market capitalization of $125.59 Billion, the $1.1 Billion per year is only a loss of 0.88% of BP’s current market capitalization each year.

However,

 in the Press Release, BP announced that the company will take a pre-tax charge of $53.8 Billion – 43.1% of it’s current market capitalization. The press release states, in part,

The expected impact of these agreements would be to increase the cumulative pre-tax charge associated with the Deepwater Horizon accident and spill by around $10 billion from $43.8 billion at the end of the first quarter. Separately to these agreements, the total charge reported in BP’s second quarter results will also reflect other items including charges for additional business economic loss determinations.”

I’m not sure how they define and calculate the “additional business economic loss determinations” to get from $18.7 Billion to 43.8 Billion. But here’s my back-of-the-envelope calculation. An estimated 5.2 million barrels of oil spilled into the Gulf, at a rate of 60,000 barrels per day, for the 87 days from April 20, 2010 to July 15, 2010. At today’s price of $55.52 (West Texas Intermediate, WTI) to $60.32 (Brent) per barrel , the spilled oil would be worth $283.15 Million if priced as WTI on the NYMEX and $307 Million priced as Brent on ICE.

Back in 2010, AboveTopSecret quoted BP saying the Macondo field had 50 million barrels, but also quoted experts suggesting 500 million to 1 billion barrels (here). 500 Million Barrels at today’s spot prices would be worth $27.76 Billion (WTI) or $30.16 Billion (Brent). Adding the value of the Macondo field to the $18.7 Billion settlement brings us to $46.46 Billion (WTI) or $48.88 Billion (Brent). Factoring monies already spent and other costs brings us roughly in line with the $53.8 Billion referenced in the press release.

The next question is where does BP – and the fossil fuel industry – go from here?

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Popular Logistics Series on the Deepwater Horizon / Macondo Spill

  1. Fossil Fuels and a Walk on the Moon, May 3, 2010.
  2. Drill Baby Drill or Drill Baby Oops, May 7, 2010.
  3. The Magnitude of the Spill, May 15, 2010.
  4. One Month After The Spill BP Siphoning 3,000 Barrels Per Day, May 20, 2010.
  5. Deep Water Horizon – The Chernobyl of Deepwater Drilling?, June 2, 2010.
  6. The Deepwater Horizon: 40,000 Barrels Per Day or 70,000, June 13, 2010.
  7. The Deepwater Horizon After the Macondo Well Explosion, June 19, 2010.
  8. Deepwater Horizon – Bombs and Hurricanes, July 1, 2010,
  9. Like a Bad High School Math Problem, July 14, 2010,
  10. Crisis Management and the Gulf Oil Spill, July 16, 2010,
  11. The Deepwater Horizon: The Good, The Bad, and The Ugly, October 7, 2010.
  12. Deepwater Horizon may cost BP $53.8 Billion – 43.1% of it’s current value, July 4, 2015

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An analyst with Popular Logistics, I hold a BS in Biology and an MBA in “Managing for Sustainability” from Marlboro College, and over 20 years experience in Information Technology. Available as a speaker and consultant, I can be reached at “L Furman” at Furman Group . net”.