Thursday, May 27, 2010

Progress in the Gulf Oil Leak

BP stock is trading about $45 a share, giving the company a market capitalization of $140 billion. Last month, before the explosion and start of the leak, the stock was at $60 and the company had a market cap of $188 billion.

The nightmare for BP has lowered its market cap by $48 billion. Is the company really headed for a hit that large? Not according to any credible sources.

Maybe that means now is a good time to buy BP shares. Based on today's price, the dividend yield is 7.9%. Thus, investors will enjoy significant income while they watch the stock price inch up again.

BP Has ‘Some Success’ in Bid to Halt Leak, U.S. Says

May 27 (Bloomberg) -- BP Plc temporarily stopped the flow from a leaking well in the Gulf of Mexico, indicating progress on its plans to plug a well that’s been spewing oil for more than a month, U.S. Coast Guard Admiral Thad Allen said.

“They’ve had some success overnight,” Allen, National Incident Commander for the spill, said in an interview on WWL radio in New Orleans today. “Everybody is cautiously optimistic, but there’s no reason to declare victory yet.”

The company began pumping mud-like drilling fluid into the well at 2 p.m. New York time yesterday in a procedure known as “top kill.” BP will need another 24 hours before it can be “sure of success” for the process, Robert Dudley, managing director for the London-based company, said on NBC’s “Today” show this morning.

Success of top kill would bring to an end a leak that has poured an estimated 22 million gallons of oil into the Gulf and soiled 100 miles (161 kilometers) of coast. BP rose 28.8 pence, or 5.9 percent, to 520.8 pence at 4:35 p.m. in London trading.

The process uses the drilling fluid to “arm wrestle” the gusher of oil and natural gas back into the well, said Dudley, and then allow engineers to seal it with cement. BP has halted the flow of oil and gas and now must drop the pressure in the well to zero for the seal, Allen said.

Shares Rise

BP jumped as much as 6.6 percent in London trading after the Los Angeles Times quoted Allen as saying that the top kill had succeeded. The Coast Guard issued a “technical clarification” in an e-mail, saying the temporary halt in flow doesn’t mean the effort was successful.

“The operation is ongoing, we’re not giving a commentary on it,” David Nicholas, a BP spokesman in Houston, said in a telephone interview.

The well began leaking after an April 20 explosion and fire on the Deepwater Horizon drilling rig. BP leased the rig from Geneva-based Transocean Ltd., the largest deep-water driller.

Transocean rose as much as 9.1 percent today. The shares gained $3.47, or 5.9 percent, to $62.05 at 11:38 a.m. in New York Stock Exchange composite trading. Halliburton Co., which provided services on the rig, rose $1.29, or 5 percent, to $27.08. Cameron International Corp., which provided equipment to the rig, rose $1.60, or 4.4 percent, to $37.68.

Anadarko Petroleum Corp., which owns a 25 percent stake in the well, rose $3.40, or 6.4 percent, to $56.74.

Junk Shot

“It will be Friday night or Saturday at the earliest before we know definitively that the well has been killed,” Robert MacKenzie, a Houston-based analyst for FBR Capital Markets, wrote today in a note to clients. “They are in the process of mixing more mud or perhaps even a junk shot to pump before they switch to cement to seal the well.”

BP has said a “junk shot” injection of rubber scraps, may be used as needed to seal leaks in the well piping so that enough pressure can be exerted on the column of oil and gas.

A plume from the spill may reach northeast 22 miles toward Mobile, Alabama, a research vessel from the University of South Florida found in a preliminary report. The Weatherbird II made initial tests that show the highest concentrations of “dissolved hydrocarbons” were 400 meters underwater.

Congress has scheduled at least 20 hearings on the Deepwater Horizon and offshore drilling since the incident, and the Minerals Management Service and Coast Guard held another day of hearings in Louisiana on the explosion and sinking of the rig.

Drilling Delay

President Barack Obama today extended by six months a moratorium that began after oil started to spill from BP’s well. The president also canceled a proposal to drill for oil off the coast of Virginia and planned drilling by Royal Dutch Shell Plc of exploratory wells in the Arctic off Alaska.

Obama said the changes were the result of a 30-day safety review on offshore drilling the president ordered from Interior Secretary Ken Salazar.

The well may have leaked more than twice the oil that the Exxon Valdez spilled in 1989, according to figures from a U.S. government panel.

The BP well may have gushed 12,000 to 19,000 barrels a day, Marcia McNutt, director of the U.S. Geological Survey, said today in a conference call. Based on the midpoint of the estimates released by the Flow Rate Technical Group, the well may have leaked about 527,000 barrels from April 22, when the rig sank, through yesterday. That is more than double the Exxon Valdez’s 257,000-barrel spill in Alaska.

The amount of oil being spilled will help determine BP’s liability for the leak.

Spill Costs

The spill has cost BP a total of $760 million, or about $22 million a day, the company said May 24. Average daily profit last year was $45 million a day, according to data compiled by Bloomberg.

The federal government has spent more than $100 million responding to the spill and will be reimbursed by BP, Landry of the Coast Guard said.

BP said yesterday in an e-mailed statement it has paid more than $36 million in damage claims and will appoint an independent mediator to review and assist claims.

The leaking well can be permanently sealed only by one of two relief wells it’s drilling, which won’t be complete before August.

If the top of the well can’t be plugged, the company plans to replace the damaged riser pipe at the well. That requires cutting away a kink in the existing pipe, at least temporarily increasing the size of the leak, BP Senior Vice President Kent Wells said May 25.

The top kill “procedure has not been carried out in 5,000- feet (1,524-meter) water depth before and BP has stressed its success cannot be assured,” Andrew Whittock, an analyst in London at Oriel Securities Ltd., said in a note yesterday. “Many commentators believe the chance of success is less than 50 percent.”

Labels: , , ,


Anonymous Anonymous said...

think you need to change your title to failure to plug the leak

thus far everything you have said about the leak has been wrong - then again that is to be expected by someone like you - one of the biggest idiots (and haters) I have ever read.

I actually enjoy your lunacy - pure comedy gold.

what other predictions will you make - so I can bet the other way.

5:46 AM  
Blogger no_slappz said...


BP will plug the leak. Though getting it plugged may take longer than expected, BP will stop the oil from flowing into the Gulf.

New safety standards will follow and the off-shore oil drilling business will improve.

Meanwhile, the world will continue to burn 85 million barrels of oil every day. In the coming decades daily consumption will rise to 110 million barrels.

As much as reality bothers you, this is the way things are going.

Furthermore, there is money to be made in BP stock. Volatility is the key.

8:32 AM  

Post a Comment

<< Home