Slick information: another infographic

BP Oil Spill

This is from visualeconomics. Best information is that $430,000 is floating away in the ocean each day.

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Slickonomics: costs spreading thickly

 

  1. Impact of greater regulation over the O&G industry:
    1. Number of oil and gas rigs drilling in the Gulf of Mexico down 29 to 1506 – while deepwater drilling has halved to 23 since 20 April – a 16-year low (Baker Hughes, Bloomberg)
    2. Royal Dutch Shell report reduced access to the estimated 23.2 billion barrels (~76% of all US reserves) (Bloomberg)
    3. U.S. oil output may be cut by 160,000 barrels a day next year as a result of the ban, according to Deutsche Bank AG (Bloomberg)
    4. A one-year delay to deep-water projects would reduce global supplies by 500,000 barrels a day between 2013 and 2017, Sanford C. Bernstein said (Bloomberg)
    5. Shell has five wells affected by Obama’s call to halt drilling at 33 exploratory locations. Eni SpA, based in Rome, and Houston-based Marathon Oil Corp. and Anadarko Petroleum Corp. each are shown as having three (Bloomberg)
    6. Deepwater oil is important; e.g. Brazil’s Tupi and BP’s Thunder Horse in the Gulf of Mexico. Reservoirs lying more than 1,000 meters (3,280 feet) below the sea surface will make up almost 4 million barrels of daily global production by 2018, more than six times the level this year (Bloomberg)
    7. Shallow well drilling moratorium relaxed on 3/6/10 with The Minerals Management Service granting a new drilling permit sought by Bandon Oil and Gas for a site 50 miles off Louisiana and at 115 feet depth. Ominously, it’s south of Rockefeller State Wildlife Refuge and Game Preserve. Interestingly, Bandon Oil and Gas first sought the permit shortly after the Deepwater Horizon exploded and sank (Energy Bulletin).
    8. Deepwater moratorium continues but it has confused by drawing a new line at 500ft between deep and shallow. However, it further refers to platform rigs that happen to be in over 500 feet of water.
  2. Total costs:
    1. At $1.25 billion not including the $360m liability for the barrier islands (WSJ)
    2. Louisiana berm project (barrier islands) is expensive, costs unclear and success rate unclear: estimated at $3.8 million per mile. In its comments on the state’s application, the U.S. Department of Interior notes that cost estimates for mobilizing sand in the area exist and would mean costs are likely to be closer to $500 million. Engineers had less than a day to scrutinize plans and there is scepticism over its ability to work (Energy Bulletin)
    3. Costs of deepwater moratorium include:

                  i.  each rig has 90-140 employees operating 2 shifts each day. Each direct job supports 4 other positions. Hence: 800-1400 jobs per idle rig are at risk. Wages for those jobs average $1,804/weekly; potential for lost wages $5-10 million each month per platform. Total (33 platforms) $165-330 million/month (LMOGA – Louisiana MidContinent Oil and Gas Association; Red State)

                 ii. Total costs of each deepwater rig is $500,000 each day (Red State)

                 iii. Brazil/ Petrobras can use any deepwater rigs left idle in the Gulf. These can be moved to Brazilian waters. Interestingly, Petrobras has been promised $10 billion in loans by President Obama in support of its deepwater oil drilling program (Red State).

4. Dividends:  Senators remain angry about $1 billion dividend payout in May by Transocean (WSJ)

5. Future oil:

  • Crude’s premium for delivery in eight years compared with today’s price rose 86 percent since 20 April. Oil for December 2018 is $21 a barrel more than next month, compared with $11 before the disaster (Bloomberg).
  • Profitability is spyed by BP’s CEO Tony Hayward owing to the spectacular success of BP’s operations – 20% profits by 2015 – in an interview (Forbes)

6. Industry costs:

  • The slump has been felt across the industry, leading to a 14 percent decline so far this year in the MSCI World Energy index – a free-float weighted equity index. It was developed with a base value of 100 as of December 31, 1998. (Bloomberg; Bloomberg)
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Slickonomics: updates on the spill’s total economic cost profile

  1. Video on environmental, economic costs on youtube: http://www.youtube.com/watch?v=gwj4XNnw_bM&feature=youtube_gdata indicates among other things that 125 miles of coastline have been inundated by oil.
  2. BP report costs:
    1. $170 m to Florida, Alabama, Mississippi and Louisiana to help with their response costs
    2. $48 m in compensation to 35,591 affected individuals and companies.
    3. The US Small Business Association has:

                                                               i.      approved 36 economic injury assistance loans to date, totaling $1,257,000, for small businesses in Louisiana impacted by the spill

                                                             ii.      granted deferments on 272 existing SBA disaster loans in the Gulf Coast region, totaling $1,123,300 per month in payments

3. BP profitability:

  • BP made $6.1 bn in Q1 2010 (The Economist)
  • Financial Times (UK) argues that BP generates lots of net cash – $30bn over the past four quarters – and has $15bn in available cash and credit facilities. With estimates of the cost of the incident so far ranging up to $37bn, it should be possible in principle to pay both the costs and the dividend.
  • BP’s CEO, Tony Hayward, has slashed some $4 billion from his firm’s cost structure (Toronto Star).

4. Coping strategies/ benefits: Unemployed people will boost numbers of trained personnel by 150% in Alabama, Florida and Mississippi (DHR)

5. Fishing – from NOAA reporting on 5th June another 1% increase in area inundated by oil and closed to fishing. However, 67% of the Gulf of Mexico remains open for fishing.

Date of Closure Area (sq mi) Area (sq km) Percent Coverage of Gulf EEZ Percent Change in Coverage
May 2 6,817 17,648 2.8 N/A
May 7 10,807 27,989 4.5 58.5
May 11 16,027 41,511 6.6 48.3
May 12 17,651 45,717 7.3 10.1
May 14 19,377 50,187 8.0 9.8
May 17 24,241 62,784 10.0 25.1
May 18 45,728 118,435 18.9 88.6
May 21 48,005 124,333 19.8 5.0
May 25 54,096 140,109 22.4 12.7
May 28 60,683 157,169 25.1 12.2
May 31 61,854 160,200 25.6 1.9
June 1 75,920 196,633 31.4 22.7
June 2 88,522 229,270 36.6 16.6
June 4 78,182 202,491 32.3 -11.7

6. National Parks Service reports reduced access for the public to eight of its parks and highlights blight on seagrass beds, salt marshes, mangroves and shipwrecks.

7. In 2009, oil and gas industry spent $169 million lobbying government (Kentucky.com)

8. MMS has been loath to play regulatory hardball with offshore operators from which it collected $13 billion in royalties last year (Toronto Star).

9.There are more than 3,500 active wells in the Gulf (Toronto Star).

10. Enhanced health and safety standards in the oil and gas industry are very likely.

  • In the UK, a spill prevention and response advisory group established last week and plan to review offshore practices and response preparedness (The Guardian)
  • Standards of operation on all of its oil rigs are being questioned (The Guardian)
  • Higher costs for all as risk averseness creeps in. BP’s competitors saying they all use two well casings, not one as at Deepwater Horizon (The Guardian)
  • Proposals include relief wells should be built in tandem with the main well in future offshore projects – e.g. Chevron Corp.’s drilling operation in 2,600 metres of water in the Orphan Basin, about 430 km off Canada’s East Coast (Toronto Star)
  • The failure of the five-story “blow-out preventer” that sits atop the Macondo wellhead, about 1,500 metres below the surface, means it needs to be re-engineered and tested to function at extreme water pressure. In their deepwater natural gas projects in the South China Sea, Chinese state oil company Cnooc and its Calgary-based partner, Husky Energy Inc., will use two sets of blow-out preventers (Toronto Star)

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Spillonomics: INDIRECT costs of the BP oil spill

 Logo1

  1. Government cost escalation: proving that the $69m asked for last week was the “tip of an inceberg”, disaster assistance for those affected by the oil spill is available in the following areas:
    1. Unemployment insurance
    2. One-stop career centre initiative
    3. Business disaster loans
    4. Food
    5. Special Supplemental Nutrition Program for Women, Infants, and Children
    6. Living assistance for the needy
    7. Small business assistance
    8. Economic Adjustment Assistance Program 
    9. Public Works and Economic Development Program 
  2. Insurance: The Economist reports there are 500 claims adjusters working on the tens-of-thousands of claims already made to BP.
  3. Future prospecting access in the Gulf: The Economist reports that the indirect costs of reputation loss will introduce incalculable future costs as barriers for BP will reduce prospecting gains. 
  4. Several logo competitions are being offered online (Reuters). One with a full US$200 prize to redesign the BP logo with an slick theme. Example above from logomyway.com.
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Slickonomics: cost updates, 5th June 2010

1. Total cost: Estimates of the final cost to BP vary from $5bn to $35bn (FT).

2. Four wells are being sunk costing about $100 million each and are being drilled from rigs owned by Transocean (NYT)

3.BP has spent at least $50m on TV advertising to improve its image (BBC)

4. BP will be sending another payment this month to people and businesses who lost income. In total $84 million spent reimbursing people for their loss of income (NYT).

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Slickonomics: lastest cost guesstimates

Here are some cost updates from today’s media.  

  1. Total costs: at least $1.4bn (BBC)
  2. Potential liability could be $37bn (Guardian)
  3. Sand barriers: to protect Louisiana’s delicate marshes cost-to-date $360m (BBC)
  4. BP state-of-play:
    1. Identified as a takeover target: BP’s 26% stake in the Prudhoe Bay oil field in Alaska might have to be sold. Mining giant BHP Billiton has also named as a potential bidder for BP’s interests in the Gulf of Mexico (Guardian)
    2. Dividends (nothing to do with oil spill): expected to be $10.5bn (BBC)
    3. Credibility in US falling – where it gets 40% of its income (Guardian)
    4. Cost of borrowing: increased 2% since “top kill” failure from 3.5% to 5.5% (BBC)
    5. Price that investors pay to insure BP’s debt – already at record levels – soared by 100 basis points to 270bp on the Markit derivatives trading platform (Guardian)
    6. Fitch has downgraded BP’s debt ratings, expecting costs this year to be $2-3 billion (CNN)
    7. Has relatively little debt: BP owes £14bn in total debts, whereas stock markets currently value the company at £84bn although it has fallen as low as £82bn (BBC)
    8. Has lost one-third of shareholder value – £44bn (Guardian)
    9. In 2009, BP expects to pay about $4bn in production taxes globally, of which £130m would be in Britain (Guardian)
  5. Government invoice: for clean-up to date for $69m (BBC)
  6. FTSE 100 and Pensions:
    1. The plunging value of BP is a blow to British pension funds as it is estimated to provide £1 in every £7 paid in dividends by FTSE-100 companies (Guardian)
  7. Insurance markets:
    1. property insurance premiums for shallow water offshore projects to increase by 15-25% (Moody’s)
    2. increased insurance premiums for deep water offshore oil projects by up to 50% (Moody’s)
  8. Gulf economy reliant on maritime:
    1. A recent Texas A&M University study estimated that the oil, tourism, fishing and shipping economies in the Gulf region are worth $234 billion a year – with the U.S. accounting for two-thirds of that (FOX)
    2. Florida tourism industry worth $60billion (FOX)

Crosses with the names of species of fish and recreational activities that have been lost or altered as a result of the oil spill fill a yard in Louisiana, as protests gather pace across the U.S.

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Slick Politicians: new taxes solving current problems (if they reoccur)

US politicians have spent the last month admitting the Oil Pollution Act provides insufficient incentives to avoid risky oil exploitation and sets liability too low at US75million.

To solve this, a new bill that will quadruple the tax on a barrel of oil to 32c to finance future cleanup costs is being mooted. This bill could to raise $11 billion over the next decade.

Compare this with the Oil Spill Liability Trust Fund which presently has about $1.5 billion available.

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Sketching slickonomics: Crude awakening

This is an excellent infographic from Infographic World by Carol Zuber-Mallison.

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Slickonomics: protection money triples

Sending in the heavies post-“top kill” is Louisiana Governor Bobby Jindal. Bayou Buzz reports tripling requests for funding after “top kill” failed. “I call on BP to immediately invest $1 billion to protect marshes, wetlands and estuaries across the region.  Half of that money should go to short-term projects that can bolster the protection of the Louisiana coast within the next 30-90 days.  The other half can be divided up among Gulf Coast states based on the immediate threat posed by oil spewing from the well.”

This is on the back of a carefully worded, referenced letter to Frank Hernandez, BP America Inc’s V.P. Government & Public Affairs [on 28/5/10 – pre top kill failing]:

“Commercial fisheries in Louisiana bring over $275 million worth of seafood annually to Louisiana docks according to National Marine Fisheries Services (NMFS) data. Along with the commercial sector of the industry, the recreational fishing industry also will be impacted severely. Louisiana anglers generate approximately $1 billion in retail sales related to recreational fishing activity every year. An estimated 4.1 million recreational saltwater fishing trips are initiated from marinas in the impacted area annually. Preliminary indications based on license sales and data from the Louisiana Department of Wildlife and Fisheries (LDWF) indicate that approximately 6,127 commercial fisherman, 4,238 vessel owners, 645 wholesale/retail dealers, 420 charter captains, 107 marinas and 1,200 oyster lease holders managing 358,740 acres of leased water bottoms and 1,047,074 acres of state managed public seed grounds will be directly impacted.

When combined with other economic outputs, these industries generate a total economic effect of nearly $4 billion annually. With oil contaminating the Gulf’s coastal marshes and estuaries, LDWF, in coordination with the Louisiana Department of Health & Hospitals (DHH), has been forced to close recreational and commercial fishing in most of the area east of the Mississippi River since Friday, April 30, 2010. As a result, the fishing industry in the parishes of Plaquemines, St. Bernard, Terrebonne, Lafourche and St. Tammany have begun to feel severe impacts. This area produces roughly 20 percent of Louisiana’s annual seafood harvest, which is valued in the millions of dollars. With the continued migration of large volumes of oil across the Louisiana coast, other parishes are feeling the effects as well. Commercial fishermen, vessel owners, wholesale/retail seafood dealers and related commercial establishments across the coastal parishes are already suffering decreased re! venues due to area closures necessitated by the spill.

Economic forecasts currently predict that possible job losses related to this incident will be in the thousands; more than 12,000 jobs might be lost. Given the uncertainties and the potentially devastating impact on an already weakened job market, it is vital that the state prepare for reasonably anticipated scenarios.

In order to provide a swift and ameliorative response for the individuals and businesses greatly impacted by this disaster, as well as to address the long-term impacts, the State of Louisiana is formally requesting that BP establish a fund to address a variety of specific needs regarding business and community impact mitigation. The State requests that in this first phase, BP make available an initial $300 million in the fund.”

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Slickonomics: cost updates post-“top kill” failure

“Top Kill” has failed. What will the engineers try next? In the meantime, costs continue to clock-up.  

  1. Tourism:
    1. Financial Times (UK) report estimates of tourism bookings in hotel occupancy rates in Florida between Pensacola and Panama City down 30%; and down 70% on Memorial Day along Florida panhandle.
    2. Morning Star (USA) report tourism in the Gulf brings in $1-2 billion annually.
  2. Fishing:
    1. Financial Times (UK) report 46,000 square miles of Gulf of Mexico currently closed to fishing.
    2. Financial Times (UK) reports Lousiana has 59,826 licensed commercial fishermen and over 800,000 licensed recreational fishermen.
    3. Morning Star (USA) report Gulf fishing brings in $2.5 billion annually.
  3. Shoreline impacts:
    1. Morning Star (USA) report up to $5billion costs depending on shoreline exposure.
    2. Reuters report over 300 seabirds found dead from suspected contamination from the slick.  
  4. Share price:
    1. Financial Times (UK) report BP shares fell 5% Friday as uncertainty about the effectiveness of “top kill” ebbed. News on Sunday 30 May that it had failed, raises worries over Tuesday’s.
  5. Off-shore drilling in Gulf of Mexico:
    1. Financial Times (UK) reports that Obama has gone further than many expected in calling a halt to off-shore drilling in Gulf. This means the 33 deepwater exploration rigs will have to be sealed off so the rigs can detach and move off them.
    2. Adam Sieminski of Deutsche bank argued this would double lost production for next year to about 160,000 b/d – about 2% of the US 8.2 million b/d.
    3. Further restrictions from careful review of future exploration permits are expected to grow this 2% drop in production for next year. “Top kill” failure will exacerbate this. Chevron and Royal Dutch Shell particularly feeling these constraints.
    4. KTVA-CBS 11 News report over 800 jobs lost owing to the halt in off-shore drilling, over $2billion investment delayed. A UAA study shows if offshore drilling were to move forward it would mean 35,000 jobs per year. Over a 50 year time period that would reportedly translate into $72 billion worth of salaries. Coupled with the argument that off-shore drilling in Alaska is at a fraction of the depth of the Gulf – at 150-200m.
  6. Daily costs of containment:
    1. Morning Star (USA) report daily costs have climbed to $42m from $22m pre-“top kill”. Expanded oil containment costs in the Gulf of Mexico and along shorelines and new settlements could also be factors behind the cost increase.
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