Scenarios: The future for BP after the oil spill

BP IS BARRED FROM DOING SOME BUSINESS IN THE U.S. AT LEAST TEMPORARILY – SOMEWHAT LIKELY

Some commentators have called for BP to be banned from drilling in the United States, which would seriously damage the company’s business given that 40 percent of its assets are in the United States and it depends on the country for its growth plans.

Analysts are divided on whether some debarment is likely.

“There are going to be heavy fines. The regulator is going to be tough on them getting permits but all companies have to be treated by the rules. This isn’t Venezuela,” said Morris.

However, under federal law BP would have to be banned from government contracts for a period of time if convicted of a criminal offense under the Clean Water Act. The company could also be barred from contracts if civil judgments are entered against it for violations of environmental laws.

BP has already faced partial bans on receiving federal contracts because of past violations of U.S. laws. After the pipeline leaks at its Prudhoe Bay Unit in Alaska and a fatal explosion at a Texas refinery, the company was ineligible to receive federally funded contracts for services from those two facilities.

The company had been negotiating with the U.S. Environmental Protection Agency over those bans but those talks were halted after the oil spill in the Gulf of Mexico.

While BP could face such a penalty in the latest oil spill, one law professor and private practitioner, Anthony Sabino, noted that there were not a lot of other oil producers so it might only be a short-term debarment.

That could be viewed as a punitive and politically motivated action, but regardless such a ban would likely “be a short-term hit and not substantial,” he said.

BP TO FACE FINES AND PENALTIES – LIKELY

In addition to facing billions of dollars in costs from the economic liability and damages, BP could also potentially face billions of dollars in civil and criminal penalties if the Justice Department’s investigation finds wrongdoing.

Some legal experts have said that proving some criminal charges may be more difficult because it requires showing intent, negligence or other malfeasance. However, some environmental laws have simple criminal violations, including the one banning harm to migratory birds.

For each barrel of oil that prosecutors can prove has spilled into the Gulf, BP could be fined $1,100 or as much as $4,300 if they are able to prove negligence was the cause.

Prosecutors could use estimates from a team of scientists and experts who found between 12,000 barrels per day and 19,000 bpd are flowing from the broken well. That could equal as much as $81.7 million in fines per day at the high end. With 44 days of oil spewing from the well, that would equal $3.6 billion as of Wednesday.

Additionally, U.S. laws protect endangered species and migratory birds, with fines of up to $25,000 per violation. Already more than 100 birds have been found oiled or dead, according to the Unified Area Command for the spill response efforts. There are also criminal fines associated with such violations, which could be as much as $50,000.

If other companies are also found to be responsible for the spill as well, the penalties could potentially be imposed on each violator. In some cases, most significantly the Exxon Valdez spill in 1989, companies try to negotiate a settlement with the federal government, as is expected with BP.

Two years after the Valdez spill, Exxon settled U.S. civil and criminal charges in a plea agreement that included just over $1 billion in penalties, damages and restitution.

At the time, the $125 million in criminal penalties was the largest of its kind while $900 million went to reimburse federal and state governments for responding to the spill and later restoration projects. The federal government and state of Alaska in 2006 sought another $92 million from Exxon, however that request has not been resolved.

BP TO FACE GROWTH HEADWINDS IN THE FUTURE – LIKELY

BP’s targets for expanded production will become tougher to achieve following the oil spill, and its financial performance will suffer from higher costs — even after spill costs and fines are paid.

BP said earlier this year it was targeting oil and gas output growth of 1-2 percent over the medium term. This plan relies heavily on BP’s U.S. projects and especially the Gulf of Mexico, where it was leading the push into ever-deeper waters.

The dislocation caused by dealing with the spill, including the diversion of vessels from other fields means BP will face a particular challenge in keeping its drilling plans on track. A moratorium imposed by Obama on new deepwater drilling after the spill will also slow development plans at BP and across the industry.

Even when the oil spill has been dealt with and the drilling moratorium is lifted, BP’s damaged reputation is likely to mean more scrutiny from regulators than other companies, analysts said.

This means it will likely take longer than it would have expected in the past to bring fields to production.

“The Gulf of Mexico position was much heralded by management as a differentiated position for BP relative to its peers only 12 months ago … the full monetization of these assets is likely to take longer,” Morgan Stanley oil analyst Theepan Jothilingam said in a research note.

Lower-than-expected production would hit BP’s financial performance but in addition to this, higher costs could weigh on BP’s profits. Analysts at Bernstein estimated the company could face 10 percent higher operating costs in the United States after the spill, in part due to the need to impose tougher safety standards.

Stock Market Today

(Additional reporting by Jeremy Pelofsky and Ayesha Rascoe in Washington; Editing by Frances Kerry and Eric Walsh)

Scenarios: The future for BP after the oil spill