Deepwater Horizon Oil Spill

Introduction

Deepwater Horizon oil spillage in the Mexican Gulf.

Deepwater Horizon Platform was an ultra-deepwater, semi-submersible offshore oil drilling rig, which built-in 2001 in South Korea by Hyundai Heavy Industries, and leased to BP plc until 2013. The Deepwater Horizon Oil Spill (also known as the BP Oil Spill or the Gulf of Mexico Oil Spill) is the largest oil spill in history, caused by an explosion on the Deepwater Horizon oil platform – about 50 miles southeast of the Mississippi River Delta in 20 April 2010. As a result, 11 of the workers on the platform are dead and most of the 126 were safely moved.

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At approximately 9.45 p.m., methane gas from the well, under high pressure, shot on the way up and out of the drill column, expanded on to the platform and then ignited and exploded. Then the platform engulfed in flames. After burning for approximately 36 hours, the Deepwater Horizon sank on April 22, in about 5000 feet of the water. The causes of the explosion of the platform operated by BP are found in ”inadequate risk assessment”, ”insufficient knowledge and experience of workers”. The ”inadequate control

of decisions” depending on security issues and ”lack of discipline” is also serious reasons which caused the explosion. Experts referred that systematic research was set up to ascertain the causes of the disaster. However, it’s extremely critical to BP.

The impacts of the ecological disaster were obvious and completely negative. The structure of the industry and society destroyed, human health shacked, wildlife and fishes disappeared, tourism decreased, organisms and ecosystems decimated and the economy declined.

Implications of the ecological disaster on BP’s share price.

Grim has also deleted the future of BP, after the ecological disaster and it was getting more and more frightening dimensions. BP was the fourth-largest oil company in the world in terms of market capitalization before the explosion at the oil rig Deepwater Horizon. Although, six weeks after the accident BP lost 40% of its market value riding the oil giant at the lowest levels. The cost of the collection of the leaking oil was cyclopean! The number of funds allocated so far to confront oil spill in the Gulf of Mexico was about $6.1b (approximately ˆ4.3b) and the annual loss for the year ending 2010 of the oil Cyclops was $3.7b.

According to a methodical study of the reasons which contributed to pushing BP’s share prices to go downwards in short term, all are regarding to the general principles of shares’ variation. In line with these principles, the share price goes down when the investors are characterized by fear and insecurity. When they recognize that the share price is sloping downwards, they panic with the idea of losing their money. Thus, they sell their shares – pushing the share price to go further down, more rapidly. Secondly, according to the law of demand and supply, when there is surplus of shares supply the share price slopes downwards. In addition to this, some other factors which affect the share price negatively are: reduced or paused dividend payments, a deficit of raw materials, or an event that affects the company contradictory. All these factors seemed that affected BP Company too.

BP shares, with regard to 2011, trade on a price-earnings ratio of 6.5 times, partly reflecting the company’s actual earnings. This proportion reflects a positive level of earnings compared to Royal Dutch Shell which trades 8.9 times. Although, BP’s ratio could be far lower if it was found that the company had more gross negligence. This would increase legal costs and fines, pushing earnings further down.

Even so, the oil giant started making plans and composing a strategic agenda that can influence positively its share price, increase shareholders’ value and investments, activate the portfolio of management, and return to ‘progressive dividend policy’ in the medium and long term. BP has already sold off interests in various areas of the globe and intends to sell a facility and two refineries. A year of recovery and consolidation seems to be 2011, as BP implemented changes to reduce operational risk, increase its gains and respond to commitments arising from the spill. It’s obvious that it will be a year in which the oil giant has the opportunity to reset the company, adjusting the profile of its business, concentrate on growth opportunities in developing and focus on its restructuring.

If the company success in demonstrating that is safer, more sustainable, more valuable and more trusted, its share price will generally grow in the medium and long term. Investors and shareholders will feel safer and more confident about the future share price’s influence. Maybe, some of the investors won’t react immediately in a positive way after this publicity of information, but the majority of them will over-react, bringing the company into higher levels.

Bibliography

1. Hillier, D., Ross, S., Westerfield, R., Jaffe, J., Bradford, J., (2010).
2. Corporate Finance. New York: McGraw-Hill Higher Education. p350-354

References

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2. Goessl,L. (2011). BP reports annual loss after Gulf spill. Available: http://www.helium.com/items/2083100-bp-reports-annual-loss-after-gulf-spill.
3. Steverman, B.. (2010). Investing Insights BP’s Battered Stock: Can Investors Clean Up?. Available: http://www.businessweek.com/investing/insights/blog/archives/2010/06/bps_battered_stock_can_investors_clean_up.html.
4. The business news leader, February 1, 2011, The International Business Time: BP share price down on FTSE 100 as oil spill costs lead to FY loss, available: http://uk.ibtimes.com/articles/107320/20110201/bp-share-price-down-on-ftse-100-as-oil-spill-costs-lead-to-fy-loss.htm
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8. BBC news (2011), BP shares jump 6% on takeover reports, from http://www.bbc.co.uk/news/business-12114720
9. BP Press Office (2011), BP: BP Resumes Dividend Payments, Targets Investment on Delivering Value Through Long Term Growth, Will Reduce North American Refining Footprint, available: http://www.bp.com/genericarticle.do?categoryId=2012968&contentId=7066971 (2003).
10. Yahoo Finance: Historical Prices. Available: http://uk.finance.yahoo.com/q/hp?s=BP.L&a=0&b=1&c=2003&d=1&e=19&f=2011&g=d&z=66&y=132. Last accessed 3rd Apr 2011.
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13. Regarding to the Oil Spill in the Gulf of Mexico. Available: http://www.gewponoi.com/biotech/index.php?topic=1745.0. (2010).
14. The ‘lack of discipline’ was the cause of the explosion on the platform of BP. Available: http://greeknews.biz/index.php?option=com_content&view=article&id=84250:-l-r——–bp&catid=40&Itemid=72.

Pictures References:

1. http://www.ngoilgas.com/news/Louisiana-oil-rig-blaze-leaves-11-at-least-missing/
2. http://www.eoearth.org/article/Deepwater_Horizon_oil_spill?topic=50364
3. http://thebubbaeffect.wordpress.com/2010/05/14/it-isnt-salad-oil/
4. http://www.upi.com/News_Photos/gallery/Effects-of-Gulf-oil-spill-on-wildlife-and-nature/3269/
5. http://www.guardian.co.uk/environment/gallery/2010/may/06/deepwater-horizon-oil-spill-oil-spills
6. http://www.dailymail.co.uk/money/article-1292919/BP-fight-US-demand-disclosure.html
7. http://www.runtogold.com/2010/05/platinum-and-silver-valuation-and-volatility/
8. http://twistedsifter.com/2010/05/funny-creative-bp-logos-competition/

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