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BP Spill: Ripples

What will BP’s future look like?

Marketplace Staff Jul 27, 2010
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BP Spill: Ripples

What will BP’s future look like?

Marketplace Staff Jul 27, 2010
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TEXT OF INTERVIEW

Kai Ryssdal: BP came out with its quarterly profit report this morning. Or, more to the point, the quarterly losses. $17 billion in red ink. The biggest loss ever for a British company, thanks in part to a massive set-aside to pay for the leak in the Gulf.

Marketplace’s Krissy Clark is here to help make sense of it all. Hey Krissy.

Krissy Clark: Hi, Kai.

Ryssdal: So break down this morning’s numbers for us would you? Because the drilling’s not quite done yet, the clean up is certainly not done. How do they know how much they lost?

Clark: So, it’s part math, it’s part guess work and it’s also part strategy. There are a lot of numbers here so bear with me. They actually made $5 billion in profit.

Ryssdal: From operations right?

Clark: Exactly. But that was all negated by their estimate that they’re going to lose $32 billion over the next several years in clean up costs. That’s where the guess work and the strategizing comes in, because BP doesn’t want to admit maximum liability here. That would imply that this was more than just an accident, that they were grossly negligent here, and if that were the case, the fines first of all would go up from about $1,000 a barrel of spilled oil a day to $4,000 a barrel. It would also mean that they would have to pay for the entire bill. Right now, they are banking on the assumption that they are going to split this liability with their partners in this well. So they would only be paying for 65 percent of this. So this $32 billion number allows BP to go under the maximum liability without looking like they’re low-balling it.

Ryssdal: OK, but how is this going to change BP, this whole event? Because they’re selling stuff, they’re getting smaller, right?

Clark: Well, at this point it’s true that company has lost $70 billion in its worth since before the spill, and they’re saying that they are going to be smaller and wiser. When you look at how they’re actually going to be operating differently, they might go from 4 million barrels a day to 3.5 million barrels in production. That still puts them as the second largest oil company in the world.

In terms of how they’re going to pay for all of this? That’s where they are changing things a little bit. They’re planning on selling $30 billion in assets in the next year and a half. What’s interesting though is that it doesn’t look like they’re selling a lot of these kind of risky deep sea offshore assets. I talked to Nick McGregor who is an oil analyst in London at Redmayne-Bentley Brokerage. And he said that even after the spill and this nightmare that BP has gone through, they’re probably going to keep focusing on high risk oil operations.

Nick McGregor: I think BP is in a difficult position, because having identified itself as a specialist in difficult to reach oil in exactly the sort of areas that they were working on in the Gulf of Mexico, for example, BP to turn on a sixpence and abandon that area would have a problem. What would be next?

Ryssdal: What I’m hearing then Krissy from you and Mr. McGregor here is that it doesn’t sound like BP is going to change its exploration strategy at all.

Clark: Right, and in some ways they can’t really. Partly, because a lot of that easy to reach onshore oil is increasingly controlled by sovereign nations in the Middle East. And partly because that’s the reputation they’ve built themselves on. Speaking of reputations, one thing that they may be trying to change is their name, at least in terms of how we know them at gas stations in the U.S. There are some rumors that they might be going back to Amaco as opposed to BP.

Ryssdal: Krissy Clark on the BP profit numbers this morning and what it means for the company. Krissy, thanks a lot.

Clark: Thank you.

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