Fire boat response crews battle the blazing remnants of the off shore oil rig Deepwater Horizon in this handout photograph taken on April 21, 2010. (Us Coast Guard/Reuters)
By Steven Mufson July 14 at 7:15 PM
What’s bigger than the value of Ford, Honda or General Motors? As big as the biggest U.S. electric utility? Eight times the size of Staples and Office Depot combined — if a judge hadn’t blocked their merger?
The answer: the $61.6 billion cost to BP of the 2010 oil spill in the Gulf of Mexico.
On Thursday, BP issued its final estimate of the cost of the spill, the largest in U.S. history. The company said that it would take a pre-tax charge of $5.2 billion in the second quarter of this year and added that would be enough to cover anything that hasn’t been resolved.
On an after-tax basis, BP’s spill costs will amount to $44 billion with the additional charge of $2.5 billion in the second quarter, the company said.
“It’s a really scary number,” said Fadel Gheit, oil analyst at Oppenheimer & Co. “Before the accident, BP had a market capitalization of $180 billion. The accident actually shaved off one-third of the market capitalization of the company. It’s a miracle that the company is still in business.”
Life for BP changed on April 20, 2010, when a blowout a mile under water sent oil and gas surging up to the Deepwater Horizon exploration rig, setting it on fire, sinking it and killing 11 crew members. The well leaked for 87 days, pouring at least 3.19 million barrels of crude oil into the Gulf of Mexico.
And it triggered a flood of lawsuits and federal penalties.
Gheit said that BP “basically gave birth to another company.” Although BP’s payments have been sprinkled among hundreds of lawyers, 400 local governments, tens of thousands of claimants and the federal government, the $61.6 billion is larger than the market capitalization of either of the next two biggest integrated U.S. oil companies — ConocoPhillips or Occidental Petroleum — and more than twice the size of Anadarko Petroleum, the biggest U.S. independent oil company.
BP paid all sorts of people, including shrimp fishermen on the Louisiana coast, motels in Mississippi, school districts in Florida and the Environmental Protection Agency, which received $4 billion in criminal fines and more than $14 billion in Clean Water Act penalties and compensation for natural resource damages. The cost includes medical costs, property damage, economic losses, its own cleanup costs and a settlement with the Securities and Exchange Commission.
“We’re lucky that BP was not a small company, because at the end of the day, the government would have shouldered the entire weight of the accident,” Gheit said.
BP said it believes that any further outstanding spill-related claims “will not have a material impact” on BP’s finances.
Brian Gilvary, BP’s chief financial officer, said BP now has “a clear plan for managing these costs, and it provides our investors with certainty going forward.”