BP is spending more than $6 million a day to plug an oil well that started leaking after a Transocean drilling rig exploded and ultimately sank in the Gulf of Mexico. And the oil company is going to shell out a lot more before it's over because the stakes for the environment, its own reputation and the industry are higher than ever.
BP's liability for the initial blast that killed 11 men and obliterated the $600 million Deepwater Horizon oil rig will be limited. Transocean owns the rig and is ultimately responsible for safety on board. But CEO Tony Hayward knows only too well that BP will be judged by how the company responds. When Hayward took over three years ago, BP was still grappling with the 2005 Texas City refinery fire that killed 15 people. Hayward knows BP's reputation, which has barely recovered, is at risk once again. Which explains why Hayward is overseeing the cleanup operation personally.
This time, the stakes and potential fallout aren't just big for BP, but the rest of the offshore drilling industry as well. An estimated 1,000 barrels of oil a day are leaking from the BP well located some 5,000 feet under water. The spill, as of Tuesday, was 21 miles from shore, U.S. Coast Guard Rear Adm. Mary Landry said during a press conference. This could be the most significant spill in recent history if the well isn't secured, Landry said.
The oil rig explosion and subsequent spill brings unwanted attention to the risks of offshore drilling. And the timing couldn't be worse for the industry. President Obama last month expanded offshore oil and gas exploration in the U.S., a move that environmentalists have criticized ever since. Not surprisingly, environmentalists decried offshore drilling immediately after the oil rig explosion.
The industry should be more concerned with lawmakers, especially those who supported offshore drilling prior to the oil rig explosion. Florida Gov. Charlie Crist is apparently rethinking his support for offshore drilling. Sen. Bill Nelson, D-Florida, just last month gave tentative support to Obama's offshore plan. But that support has all but disappeared. Nelson has called for an investigation into offshore drilling and the industry's safety practices. Protests from lawmakers in coastal states will only get louder and possibly derail expanded offshore drilling altogether if the spill reaches land.
BP's response has been aggressive so far. The oil company has sent more than 1,000 personnel, 32 ships and five planes to deal with the spill. BP is spending more than $6 million a day to secure the well and limit the impact from the release of oil, said Doug Suttles, BP's chief operating officer of exploration and production, during a press conference Tuesday. Drilling a second well to plug the leak, an option BP is pursuing, will cost an estimated $100 million.
BP understands that a dollar (or $6 million) spent today means considerable savings tomorrow. Environmental cleanup costs, which BP is responsible for under the Oil Pollution Act of 1990, will skyrocket if the oil spill reaches the shoreline.
That's not to say BP can simply spend its way out of this mess. BP will still have to answer to the numerous government agencies overseeing the spill. How BP handles itself in this crisis will give investors and the public the clearest indication yet of whether it's a new, safer and more responsible company or the same one we saw back in 2005.