Take Overs, Bond Values, Stock Drops, and BP’s Future

With all this oil in the Gulf, all the terrifying pictures, footage, and reports its easy to forget the real victim here. That’s right, I’m talking about a sensitive affluent little business with a previously bright future, British Petr-  I mean Beyond Petrolium. Once the most profitable company in the entire history of the world, BP now faces stock slides, falling credit and bond ratings, and a possible death by cannibalism.

The downturn began on Tuesday, after BP’s “top kill” plan failed to block a massive leak in the Gulf of Mexico by pumping mud into the well.

But BP’s bonds continued to fall even as its shares recovered on Wednesday.

Meanwhile, rating agency Fitch has cut the firm’s credit rating marginally, and threatens further downgrades if the cost of the oil leak rises further.

Fitch cut BP’s rating by one notch, from AA+ to AA, although this is still one of its highest investment grade credit ratings.

Borderline junk

The other two main rating agencies – Moody’s and Standard & Poor’s – also still rate BP’s creditworthiness highly, at Aa1 and AA respectively.

Yet bond markets are now pricing BP’s debts at levels comparable with much riskier “junk” rated companies.

The oil company’s main five-year dollar bond was trading on Thursday at a yield of 5.5% – some 3.25% more expensive than the interest rate that the US government would have to borrow at.

Yet before the weekend, the same BP bond was trading at a yield of 3.5%, meaning its borrowing cost has jumped by 2% as a result of the failure to plug the oil leak.

One City analyst told the BBC that the bond markets’ fears made no sense, because BP has so little debt.

BP owes £14bn in total debts, whereas stock markets currently value the company at £84bn.

read more at the BBC

With a looming bills, suits, and fines to stack on the one billion dollars the company hs already spent on the disaster, and a 1-5 thousand dollar fine per barrel, one has to wonder how this company could fend off its competitors who would like nothing more to consume their business. Check out their new ad, and take a good look at it’s narratar, BP CEO Tony Hayward, because he might not be the face of the company for long.

McClatchy Prevents Disaster: Spurs White House to Demand Off Shore Rigs Resubmit for Permits

Hashank Bengali writes for McClatchy,

The Obama administration late Wednesday moved swiftly to plug a hole in its much touted six-month ban on new deepwater drilling when the Interior Department ordered oil companies to overhaul and resubmit dozens of exploration plans that had already been approved but were virtually identical to BP’s and that called major spills and environmental damage “unlikely.”

The action came after McClatchy informed the White House and Interior officials that it had reviewed 31 deepwater exploration and development plans approved for the Gulf under the Obama administration and found that all of them downplayed the threat of spills to marine life and fisheries.

The language scarcely varied from company to company, suggesting that the plans were pumped out like boilerplate. Of the 31 plans McClatchy reviewed, 14 were approved since the April 20 explosion on BP’s Deepwater Horizon oil rig,

The administration had failed to include the plans in its moratorium, and experts told McClatchy that the filings could clear the way for drilling new wells when the ban was lifted. Following inquiries by McClatchy to White House and Interior officials, the Bureau of Land Management announced late Wednesday that oil companies would need to resubmit the plans with additional safety information before they’d be allowed to drill new wells.

“Pulling back exploration plans and development plans and requiring them to be updated with new information is consistent with this cautious approach and will ensure that new safety standards and risk considerations are incorporated into those planning documents,” BLM Director Bob Abbey said in a brief press release.

In the White House’s initial response to McClatchy’s inquiries, spokesman Ben LaBolt said only that a presidential commission investigating the BP spill would also “assess exploration and production plans and could provide options for ways to improve their development and review.”

Less than half an hour later, the Interior Department issued its press release, which came from the BLM, not the Minerals Management Service.

Read more:

Saw Unstuck, Riser Sheared

After lodging a diamond studded saw a mile underneath the ocean into the riser pipe, BP managed to finnish their cut. Initial reports from the New York Times suggest the saw actually became mired in the very same junk BP injected into the leak in hopes of jamming it. The Wall Street Journal reports,

Overnight, the response team was able to “successfully” make the first shear cut of the pipe, U.S. Coast Guard Adm. Thad Allen, the national incident commander for the spill, said at a news conference in Houma, La., Wednesday morning.

However, a specialized saw had got stuck while making a second fine cut that is needed before a containment device can be put in place.

Adm. Allen said the goal was to finish the cut by the end of the day Wednesday. A containment device would go over the top of the wellhead once the second cut is complete and is designed to channel oil up to a ship on the surface.

Meanwhile, Louisiana’s Republican governor, Bobby Jindal, said Wednesday that the White House approved a longstanding request to force BP to pay for another five sand barriers designed to protect the Louisiana coastline from oil.

read more at the Wall Street Journal

BP Saw Stuck on BP Junk

Just when you thought this Bad News Bears nightmare was over, BP’s diamond studded saw became stuck while it was cutting through the riser today during the latest attempt to halt the flow of oil in the Gulf. I’m waiting for them to remind us it has never been tried at this depth, but how could that completely flummox them while cutting a riser?

Apparently the answer to that question is that it didn’t. The real problem today was that the blade had become dulled on the various contents of the pipe, most probably the same junk BP has been shooting into it for a week. Good Lord!

CAMPBELL ROBERTSONJOSEPH BERGER and HENRY FOUNTAIN report,

A technician involved in the effort said that the wire saw had cut less than halfway through the riser when it stopped being effective. The technician, who spoke on condition of anonymity because he was not authorized to comment on the work, said that it appeared that there was other material in the riser — including, perhaps, some of the objects pumped into the well during the failed “top kill” procedure last week — that was dulling the saw.

“It was cutting at a rate far less than it should have,” he said.

The technician said that rather than trying again with the saw, the plan now was to use a large shear to cut the riser. The shear, which is about 20 feet long and nearly 10 feet high, was used to make an earlier cut in the riser about 50 feet from the wellhead.

read more at the New York Times

Vow What?

After several reports of its demise, the Climate Bill is back on the burner. The president made a speech in its support today at Carnegie Mellon University . If Obama passes this one, he will be known as the President of reanimated zombie bills. Speaking of familiar, Republican support for the bill is no where to be found since Sen. Lindsey Graham backed off from Sen. Kerry’s shadow, but there are a pack of moderates targeted for swinging sides. Mentioning them, Obama said, “The votes may not be there right now, but I intend to find them in the coming months,”

While he had the microphone, he took the time to outline some of his ideas for the legislation. The President said he would like to roll back the oil tax breaks and use that money to invest in our energy independence. This is something that has been talked about during drum circles for over four decades, but this time the talk may become law in the wake of the disaster in the Gulf.

Here is an excerpt from his speech,

And the time has come to aggressively accelerate that transition.  The time has come, once and for all, for this nation to fully embrace a clean energy future.  (Applause.)  Now, that means continuing our unprecedented effort to make everything from our homes and businesses to our cars and trucks more energy-efficient.  It means tapping into our natural gas reserves, and moving ahead with our plan to expand our nation’s fleet of nuclear power plants.  It means rolling back billions of dollars of tax breaks to oil companies so we can prioritize investments in clean energy research and development.
But the only way the transition to clean energy will ultimately succeed is if the private sector is fully invested in this future — if capital comes off the sidelines and the ingenuity of our entrepreneurs is unleashed.  And the only way to do that is by finally putting a price on carbon pollution.
No, many businesses have already embraced this idea because it provides a level of certainty about the future.  And for those that face transition costs, we can help them adjust.  But if we refuse to take into account the full costs of our fossil fuel addiction — if we don’t factor in the environmental costs and the national security costs and the true economic costs — we will have missed our best chance to seize a clean energy future.
The House of Representatives has already passed a comprehensive energy and climate bill, and there is currently a plan in the Senate — a plan that was developed with ideas from Democrats and Republicans — that would achieve the same goal.  And, Pittsburgh, I want you to know, the votes may not be there right now, but I intend to find them in the coming months.  (Applause.)  I will continue to make the case for a clean energy future wherever and whenever I can.  (Applause.)  I will work with anyone to get this done — and we will get it done.

read more at the Atlantic

BP: “…And You? Shut Up.”

We were wondering why today’s New York Times has nothing about the oil spill – excepting this below-the-fold gem about how BP has already spent $1 billion in cleanup costs. Luckily, the Village Voice provides the reason: BP’s ever-so-wonderful CONFIDENTIALITY AGREEMENT. Obtained by the incredible bloggers over at UNC-Chapel Hill’s Powering a Nation, this awesome document says that fishermen hired by the company that destroyed their livelihoods cannot talk to the press, or else forfeit their boats (you know, the only way they have to make a living). Charming, but heck — that’s business. Read the lowdown on this hoedown here.

Eric Holder Announces BP Criminal Investigation

Could we see some executives go to jail? Eric Holder seems to think so. Department of Justice is on the case.

Justin Blum and Aaron Kuriloff write for Bloomberg,

The Justice Department is investigating whether any criminal or civil laws were violated in the BP Plc oil disaster in the Gulf of Mexico, the biggest U.S. spill on record, said Attorney General Eric Holder.

“We will prosecute to the fullest extent of the law, anyone who has violated the law,” Holder said. “This disaster is nothing less than a tragedy.”

Holder announced the investigation today at a news conference in New Orleans, the same day President Barack Obama called the spill “the greatest environmental disaster of its kind in our history.” The president said, “My solemn pledge is that we will bring those responsible to justice.”

The spill began after an April 20 explosion aboard the Deepwater Horizon rig, which London-based BP leased from Switzerland-based Transocean Ltd. to drill its Macondo well in the Gulf. Houston-based Halliburton Co. provided oilfield services on the well.

Holder, who said the probe “began some weeks ago,” declined to specify which companies are under investigation. He said he surveyed a portion of the damage, was briefed by Coast Guard officers and met with prosecutors for the areas affected by the spill.

Repaying Taxpayers

The Justice Department will ensure that taxpayer money will be repaid and that damage to the environment and wildlife will be reimbursed, Holder said. The government already has told “all relevant parties” to preserve documents that may “shed light on the facts surrounding this disaster,” Holder said.

BP plunged the most in 18 years in London trading, losing 13 percent to 430 pence. Transocean dropped 12 percent to $50.04 in New York Stock Exchange composite trading. Halliburton fell 15 percent to $21.15.

read more at Bloomberg

BP Knew Long Before, and Did Nothing

Internal documents from BP show that in March, after several weeks of problems on the rig, BP was struggling with a loss of “well control.” And as far back as 11 months ago, the company was concerned about the well casing and the blowout preventer.

On June 22, 2009, for example, BP engineers expressed concerns that the metal well casing that the company wanted to use might collapse under high pressure.

“This would certainly be a worst-case scenario,” Mark E. Hafle, a senior drilling engineer at BP, warned in an internal report. “However, I have seen it happen so know it can occur.”

The company went ahead with the casing, but only after getting special permission from BP colleagues because the casing violated the company’s own safety policies and design standards. The internal reports do not explain why the company allowed for an exception to its guidelines. BP documents released last week to The Times revealed that company officials knew the casing was the riskier of two options.

Read more at The New York Times.

What Obama’s Speech Means for Shell in Alaska

ENN THRUSHJOSH GERSTEIN write for Politico,

What he said: While announcing that he was extending a 30-day moratorium on new offshore drilling for six months, Obama mentioned, almost in passing, that he was pausing plans for new test wells in Alaska. “We will suspend the planned exploration of two locations off the coast of Alaska,” he said before moving to discussion of other actions.

What he meant: You wouldn’t have known it from Obama’s presentation but his decision to block drilling in Alaska may be the most politically significant of any of the actions he took on Thursday.

A coalition of major environmental groups has been pressing the administration in newspaper and TV ads to halt the planned drilling by Shell near the Arctic National Wildlife Refuge.

The groups were watching Obama closely on this. Some analysts said they had been holding back criticism of the government’s response to the Gulf spill as they awaited word from the White House about whether the drilling planned for this summer would go forward.

“The environmental groups have been saying: if Obama allows Shell to drill, we’re abandoning his presidency. But if he says no to Shell, it’s a turning point,” said Douglas Brinkley, a presidential historian at Rice University who closely follows the environmental movement.

Postponing the Alaskan drilling, which can take place only over a short season each summer, buys Obama some time, but likely avoids the expense and legal battle of yanking Shell’s permits altogether. “He pauses the issue until after this election season. That will keep the environmental community at bay,” Brinkley said.

As recently as two weeks ago, Shell wrote to the Interior Department arguing that its Alaska plans should be allowed to proceed because conditions are “much different” than the deepwater drilling that led to the Gulf spill. Shell said it would be drilling not a mile underwater, but 150 feet below the water’s surface and that divers could intervene at that depth.

The company had a muted reaction to Obama’s move scuttling their drilling hopes for the year. “We respect and understand today’s decision in the context of the tragic spill in the Gulf of Mexico, but we remain confident in our drilling expertise, which is built upon a foundation of redundant safety systems and company global standards,” Shell said Thursday.

Read more at Politico,

More on Junk: Clogging the Blow Out Preventer

Oil Drum reports,

Admiral Allen, who is the Government head of the effort to cap the flowing well in the Gulf, and to oversee the cleanup operation, commented this morning that the well had reached a point where the internal pressure difference between the mud pumped in and the reservoir pressure was very low. However, with the relatively high volume of leakage that was passing through the BOP, the plan now included a try at blocking some of that leakage path by injecting debris (for which likely read rubber strips and small spheres) in the hope that these will lodge in the flow path within the BOP and reduce the leakage of fluid.

read more,

Topkill Might Be Sorta Kinda Maybe Working? Part II Adding Junk

So it turns out that viewers at home marveling at how much ‘mud’ was spewing from the leak were right, apparently something wasn’t working. The force of the mud was not enough to bring down the well pressure, which is the bench mark that starts the application of concrete. They have resumed pumping the mud, but are now injecting junk, or ‘bridging material’ into the mix. They have also been introducing junk and various other jamming materials into the BOP hoping to lower the pressure that way.

So it sounds like BP wasn’t able to force the mud deep enough into the well to plug it, but due to risks they probably started this process with the lowest estimated pressures to keep the pipe intact. Let’s see what happens when they put some weight on the pedal.

CNN Wire Staff writes,

“This whole operation is very, very dynamic,” Doug Suttles, the company’s chief operating officer, told CNN’s “John King, USA.”

“When we did the initial pumping (Wednesday), we clearly impacted the flow of the well. We then stopped to monitor the well. Based on that, we restarted again. We didn’t think we were making enough progress after we restarted, so we stopped again.”

The light-brown material that was seen spilling out of the well throughout Thursday was the previously pumped fluid from the “top kill” procedure mixed with oil, he said.

read more at CNN

Oil Well Has Stopped the Flow of Crude, Temporarily

BP’s latest effort to plug a leaking Gulf of Mexico oil well has stopped the flow of crude, at least temporarily, the US Coast Guard says.

The British energy giant began pumping heavy mud into the gusher on Wednesday, hoping that the mud would cap the steady stream of millions of litres of oil.

Thad Allen, the head of the Coast Guard, said early on Thursday that oil is no longer coming out of the well. But he said the well still has some oil pressure, which could theoretically cause a weak spot in the pipe to explode.

BP will now pump cement into the well to permanently seal it off.

Lisa Novak, a spokeswoman for the Coast Guard, later said that Allen “did not declare success.” But “things are going according to plan,” she said.

BP officials struck a more cautious tone. Bob Dudley, the company’s managing director, said in an interview with US broadcaster CNN that the “operation is proceeding like we expected.” The company is expected to issue a full update on Thursday afternoon.

read more at AlJazeera English,

President Obama Extends Moratorium on Drilling

Mike Allen writes for Politico,

The changes come after a 30-day safety review on offshore drilling conducted by Interior Secretary Ken Salazar, which Obama will discuss at the news conference.

Obama is effectively hitting the pause button on new wells like the Deepwater Horizon, which has been spewing oil into the Gulf of Mexico for more than a month.

And he’s delaying planned exploration off the coast of Alaska in the Chukchi and Beaufort seas while his blue-ribbon panel explores what went wrong the BP spill and how to prevent future accidents.

The halt to planned drilling this summer off Alaska will meet a key demand of environmental organizations, who have been pleading with the administration to stop exploration Shell is planning this summer. The environmental groups have featured the Arctic plan in some anti-drilling television ads.

Read more:

Require Relief Wells From the Start

It appears some countries are aware of the dangers involved in off shore drilling. Canada has a standing policy for some of these wells that require a relief well to be dug before a disaster so that during an event like the BP well in the Gulf, sealing the well via the relief would be ready at a moment’s notice. Citizens of the Gulf have already waited a month, and expect to wait until August before one of BP’s relief wells reaches the leak. Officials in Canada are currently trying to reverse such laws, but recent events may be too hard to ignore. Hopefully President Obama will announce a similar requirement today during his speech.

Paul Watson writes for TheStar,

In the western Arctic, oil companies are pressing federal regulators to ease demands for relief wells that might help avert disasters like the one unfolding in the Gulf of Mexico.

Oil firms operating in the Beaufort Sea must be able to drill relief wells, and if necessary, safely shut them down with original wells during a single Arctic drilling season.

Imperial Oil, BP, which owns the well leaking in the Gulf, and the Canadian Association of Petroleum Producers have asked the National Energy Board to suspend the regulation, which has been in effect for more than three decades.

Canadian areas of the Beaufort and the Mackenzie River delta are rich in oil and natural gas in 53 known fields. At least 183 exploration wells and 66 development wells have been drilled since the mid-1960s.

read more,

MMS Director Elizabeth Birnbaum Quits

Huffington Post reports,

Democratic sources say the Obama administration has fired the head of the U.S. Minerals Management Service in response to blistering criticism over lax oversight of offshore drilling.

The sources, speaking on condition of anonymity before the official announcement, tell The Associated Press that President Barack Obama will announce the decision Thursday.

Elizabeth “Liz” Birnbaum had run the service in the Interior Department since July 2009.

read more,

Topkill might be sorta kinda maybe working?

Reuters reports,

BP remained cautious about the outcome of the much anticipated “top kill” procedure, as did President Barack Obama, whose credibility stands to suffer if one of the country’s worst environmental catastrophes does not end soon.

But the fact that the London-based energy giant was able to launch the complex maneuver around midday and keep it on track in the first hours was a welcome respite from a string of failures and setbacks in the 37 days since a rig blast triggered the disaster.

Undersea robots were helping to inject heavy fluids and ultimately cement pumped down about a mile to the sea-bed well, while BP chief executive Tony Hayward and U.S. Energy Secretary Steven Chu monitored operations together in Houston.

“The operation is proceeding as we planned it,” Hayward said in a media briefing four hours after launching the top kill strategy.

“It will be another 24 hours before we know whether or not this has been successful,” he added.

The embattled CEO stood by BP’s 60-70 percent odds of success. But top kill, a routine procedure on the surface, has never been attempted at such depths, prompting one industry expert to predict less favorable odds.

“You have got some of the smartest guys in the business trying to figure this out, but it has never been done before,” David Pursell, partner at Houston investment bank Tudor, Pickering, Holt & Co, told Reuters Insider.

“I think the odds have to be 50 percent or less,” he added.

Obama said that if successful, BP’s plan to cap the well should greatly reduce or eliminate the flow of hundreds of thousands of gallons (liters) of crude billowing into the Gulf.

If it fails, “there are other approaches that may be viable,” he said on a trip to California.

Obama, who has told aides to “plug the damn hole,” will head to Louisiana on Friday for the second time since the April 20 rig blast that killed 11 and unleashed the oil.

If the top kill fails, the next approach would be to install a containment device over the broken blowout preventer, a structure at the top of the well on the ocean floor, said BP chief operating officer Doug Suttles said at a briefing with the Coast Guard Wednesday.

It is still unclear how much oil is flowing from the well, but it is already shaping up to be the worst oil spill in U.S. history and a long-term threat to a rich ecosystem.

The disaster is also reshaping the U.S. oil industry. Obama is expected to announce on Thursday that he will continue to hold off issuing deep water drilling permits off the Gulf of Mexico, but allow permits to be issued for shallow water drilling, a government source told Reuters.

The oil’s destruction of critical habitats continued to spread, with Louisiana Governor Bobby Jindal saying that more than 100 miles of the state’s 400-mile coastline were now affected.

PIVOTAL DAYS FOR OBAMA, BP

These days may be critical for BP and Obama.

BP’s reputation and its big presence in the United States is at stake and investors, who have wiped $50 billion off BP’s market value since the start of the spill, will watch closely to see whether the latest attempt to seal the well works.

BP shares seesawed in London trading on Wednesday, with investors boosting the share price about 2.6 percent at one point before it closed up 1.4 percent. BP’s announcement that it had launched top kill came after London markets had closed.

read more at Reuters