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BP Looks to Profit from Oil Salvaged from Gushing Well
BP, Feds Could Make Millions from Runaway Well's Oil
If the current containment effort works - and BP and the government say they're optimistic that it will - the oil giant will salvage much of the oil that's now spewing from the crumpled pipes on the ocean floor. That captured oil, McClatchy estimates, could generate more than $1.4 million in revenue for BP each day.
BP Chief Executive Tony Hayward listens during a news conference in London February 2, 2010. If the gusher in the gulf can be contained, all the oil that BP is able to siphon off will be sold at market. "It's exactly the same as if it's normally produced oil," BP spokesman Graham MacEwen said. (Reuters) Once
the oil is piped to the surface to the drill ship Discoverer Enterprise,
it will be processed and sent by tanker to a refinery to be sold.
"It's exactly the same as if it's normally produced oil," BP spokesman Graham MacEwen said.
Based on government estimates of the flow rate, the mangled well could produce oil valued at as much as $85 million over the next 60 days, until a relief well is complete and the well is capped permanently.
The people who own the deepwater site that's leased to BP - U.S. taxpayers - could see a more modest windfall. The Treasury could be due as much as $328,125 in royalties daily, or $19 million total over 60 days. Further, under its lease BP also must pay royalties on the oil lost in the spill, which would mean another $13.5 million.
McClatchy's calculation uses a government tally of 25,000 barrels flowing from the well each day and the 18.75 percent royalty rate applicable to oil from the BP well, and assumes that oil is selling at an average of $70 a barrel. Thursday's spot price hovered around $74.
The money that's due Uncle Sam and the added new revenue for BP from capturing the leaking oil raise many questions about the financial penalties that could be levied when something goes badly wrong with a deepwater oil well.
They also underscore the need for accurate measurements of how much oil has been flowing from the BP well since the disaster, a measurement that President Barack Obama acknowledged last week that the government was too slow to develop independently.
It remains unclear how much oil can be captured. An effort to cut the damaged pipe with a more precise diamond saw failed Wednesday, and underwater robots instead made a cruder cut Thursday with shears. So instead of the tight-fitting device the company hoped to use, it's installing a looser-fitting top hat containment dome.
Still, oil executives continue to be optimistic about capturing most of the oil once the dome is in place, said U.S. Coast Guard Adm. Thad Allen, the national incident commander for the Deepwater Horizon spill response.
"In a perfect world, we want an absolute seal, where you put two pipes together with flanges, and you bolt it so there's absolutely no way where anything can escape," Allen said. "When you're dealing with these rubber seals and an irregular fit, there's a chance that the pressure of the oil going up through the pipe will be more than the pipe can tolerate at a particular time and would spill over and maybe get out through the seals."
Getting a tally on the amount of oil that's flowing has been difficult. BP initially said the rate was 1,000 barrels a day. The government-appointed Flow Rate Technical Group put the rate at 12,000 to 25,000 barrels a day. Attaching the pumping apparatus probably would increase the flow by 20 percent.
"Obviously, when we start producing it to the ship, we will be able to more accurately tell what the rate is, but at the moment we can't tell," BP's MacEwen said. "We're pretty confident it will take the vast majority of the oil, but we can't be absolutely sure."
The Minerals Management Service wouldn't say whether BP will pay royalties to the U.S government on the oil if it's successfully captured and sent to a refinery for processing, but oil and gas lawyers and other experts in the field said there was no reason the company wouldn't pay the fees.
Nearly one in five barrels "is U.S. taxpayers' oil," said David Pursell, a managing director with the Houston-based energy investment and merchant bank Tudor, Pickering, Holt & Co.
BP's revenue from the crippled well is only a fraction of the cost of mopping up oil-soaked marshes and beaches, compensating fishermen and other business owners for lost business, and operating some of the world's most sophisticated underwater robotics in an effort to contain the spill.
BP already has paid out an estimated $1 billion, and this week the government ordered it to spend an additional $360 million to construct six barrier islands to prevent oil from reaching the Louisiana shoreline.
Nor will the revenue come close to the billions of dollars in value the publically traded company has lost as its stock has dropped 34 percent since the April 20 explosion.
Estimating the size of the spill has financial consequences for BP. From the day the rig exploded and killed 11 people, the company has underestimated how much oil is spewing from the broken well.
Accurate measurements are important because they're used as evidence when federal investigators consider fines and if juries impose damages on BP for the spill. BP also is responsible for paying royalties for each barrel of oil lost, and the measurements are needed to calculate the money that's due the government.
Federal officials continue to refine their estimates, said Jane Lubchenco, the administrator of the National Oceanic and Atmospheric Administration.
"The administration understands - for environmental, legal and financial reasons - how important it is to get good measurement of the flow rate," she said Wednesday.
So far, BP hasn't agreed with the estimates developed by the Flow Rate Technical Group, although the company has acknowledged that its initial estimates probably were low. When a riser insertion tool was in use last month before the company tried the "top kill" remedy that failed to shut down the well, BP collected about 5,000 barrels of oil daily. In total, the well produced 22,000 barrels.
No matter what, it owes the U.S. government, said Rep. Nick Rahall, D-W.Va., the chairman of the House Natural Resources Committee. He sent a letter Thursday to the Justice Department calling for it to recover any lost royalties.
The lost oil and gas "could end up costing taxpayers tens of millions of dollars in uncollected revenue," Rahall said. "I urge the department to take whatever legal action might be necessary to recoup these damages on behalf of the American public."
29 Comments so far
Show AllBP has announced it would go ahead with a 10 billion dollar Dividends payout to its shareholders.
Fine the Bastard Petrochemical company ten billion dollars.
GLR88 is Michelle Obama's Common Dreams username ;-)
GLR88 is Michelle Obama's Common Dreams username ;-)
and I have six pack abs
You must be smoking some good stuff! Get me some.
Does anybody else think BP should have been disqualified to make decisions about how to stop the gusher in the Gulf of Mexico? Here’s a company that has a responsibility to its investors to maximize profits. Doesn’t this create a potential conflict of interests for the BP officials who must deal with the deluge?
If you’ve had a look at pictures of the installation that failed a mile underwater, you saw a series of members bolted together, maybe 50 feet tall, topped by a partially crimped pipe that angles off toward the bottom when it ought to be pointing straight up. Suppose there were a method of collapsing the pipe or isolating the assembly that would make the oil in that reservoir permanently inaccessible to BP. Would BP consider that course, even if it had a 90% chance of succeeding? Do you see the potential for conflict here? If independent engineers and scientists were making decisions about how to stop the flow, they might worry less about the value of the oil being lost than someone who actually owns that oil.
This logic could not have escaped Barack Obama and his minions. Their claim that only BP has the resources to shut off the flow is mockery. Even the dumbest of us knows better than to entrust an emergency to the guys who created it.
Or not. We plotted a dangerous course when we set out to make ourselves dumb enough to believe what’s on TV without becoming too dumb to carry out the obligations of citizenship. This event will test whether there’s anything left of American ingenuity.
All indications are that we’re as helpless as lambs and as clueless as the hacks who populate government and the media. The networks and newspapers give us plenty of BP-bashing and similar gossip, but nothing from scientists or engineers or smart people of any kind on how to stop the leak, where the oil has gone so far, how much might come out, where it will go, just what harm it will do, how much it would cost if the spill were stopped now and how much it will cost each day it continues.
The media and government won’t tell us the names of the racketeers that let this happen, and we can expect them to wait till Obama’s popularity falls below 50% a couple of weeks from now before they start talking about his accountability. Depend on the media and government not to call for a temporary halt to expensive military adventures so we can tend to our precious waters.
Do they take us for idiots? No question about that. Are we idiots? The gusher in the Gulf will tell us one way or another. History could record that the future of humanity was entrusted to fat, stupid, pretty folk who did as people like that usually do.
http://www.currentinvective.com
Steve, I was thinking along these same lines. I believe they could have capped and stopped the gusher if they wanted. If so, it would jeopardize BP's access to the well which holds untold billions in revenue. I'm sure Hayward's lawyers and accountants have crunched the numbers and figured that paying all the upcoming lawsuits and fines pales in comparison to what they'll retrieve from that huge well in the long run.
By trying all these bush league maneuvers (stalling) we've seen over the last two months, it gives BP time to drill the relief wells. Once they're in place, no way Obama would rescind the contract. Then we'll hear how BP has new policies in place to prevent another disaster, blah blah blah. If this is anywhere close to true, BP's management and this administration should all be tossed in prison.
"Nearly one in five barrels "is U.S. taxpayers' oil," said David Pursell, a managing director with the Houston-based energy investment and merchant bank Tudor, Pickering, Holt & Co"
Nooo! 100% of the oil is owned by the Citizens. the Oil company must buy the oil from the owner for 18% of the selling price -- thats the deal.
the Oil company does not own any of the oil, just the rights to produce and market it.
it's 'mr. bean' again......................
100% BULLSHIT.
For one, the Navy is fully equipped to have gone down there from day 1 and taken measurement of how much oil is gushing out, anyone telling us any different is a gd liar, including the Liar in Chief.
My neighbor is a retired Navy Officer, and he told me just that, with the caveat that it's obviously something the administration isn't interested in doing.
Second, if you read between the lines here, the truth has been revealed. They were never trying to cap this thing. Obama and BP have perpetrated the destruction of our coastline and millions of innocent creatures so BP could capture the oil. That's exactly why they filled the Gulf with poisons.
Obama is a criminal. He's got to be removed from office before he inflicts another massike corportae crime on the American people.
I did hear today that there are no subs that go that deep anywhere. Maybe one, but it's not equipped to do the kind of repair work this requires. Many subs can only get down to about 3,000 feet, at best. Most only to about 2,000'.
That is true.... no manned submarine can go that deep with strong mechanical arms...even torpedoes cant go that deep.
So Obama could order BP out with an emergency power or something and then BP could claim then it is not responsible because they could fix it even if they can't... BP would love to be able to say "OK you don't like what we are doing So Long suckers...see you in court".
BP is also not being transparent because the FBI is doing a criminal investigation so I would think BP's lawyers are telling them to not say much.
My guess is that since last night when they first put the top Hat on it looked like lots of oil was coming out of the bottom of the Well head which is why they are not closing the vents which when open, relieve the pressure on the whole system... a broken system .
Scientists have said the pressure is the key and nobody knows how much pressure it would take to create more cracks in the drill hole and make it much worse....
Something this big is gonna take a lot of investigation but we are screwed and their is nothing I can see obama can do to fix it.... But they are open to suggestions.
I have heard all the cute ones like shoving them all down the hole.... but they already did the junk shots.
This company is huge. http://en.wikipedia.org/wiki/BP
Another lesson in the corporate power of globalization. Money might not do much to fix the colossal damage to everything.
Past time to nationalize energy production, health care, and bring all troops stationed abroad home.
If the US has not the know how to drill for oil they can hire the BP workers at a fraction of the cost of a corporation that must show a profit.
Profit is obsolete. It may already be too late to realize that.
No serious efforts at clean energy will be made while corporations control the government.
This should not come as a surprise. It was clear that every attempt to stop this oil did not involve STOPPING the oil but some way of capturing the oil. The ONLY method to block the rupture but failed, was the "junk shot" which was the last in a series of other attempts which were all about capturing some amount of oil. The current procedure is back to scratch; capture something, anything because we can get money out of it.
I believe we will find out somewhere down the line that it could have been cut off completely but that would have stopped the revenue flow.
I totally agree and that was my thought from the beginning. It should be easier to just cover it up than to cap it. But there is the pressure at that depth and the pressure of the oil that is shooting up and out. Still it should be easier to put something large and heavy over the oil to stop it, than try to cap it.
dose tony push the bolder up the incline or have his heart pecked out, I forget
missing u my bad
"In a perfect world, we want an absolute seal, where you put two pipes together with flanges, and you bolt it so there's absolutely no way where anything can escape," Allen said. "When you're dealing with these rubber seals and an irregular fit, there's a chance that the pressure of the oil going up through the pipe will be more than the pipe can tolerate at a particular time and would spill over and maybe get out through the seals."
--So. We need a Perfect World in order for this not to happen again. Since we live in an imperfect world, we have to resign ourselves to one goddamn catastrophe after another, because BP and its associates in Capitalism Inc. simply must have billions in profits every fucking quarter. There is no alternative to this scenario. Suck it up, plebes. Either get used to all this or go back to walking and bicycling everywhere. But then, probably half the components of modern bikes are petroleum based, so that's no good either. Ambulatory or bust.
If they wanted a perfect seal they could have just cut the bolts between flanges. Then lower a new flanged valve in the open position. Tighten the valve down with screw clamps or new bolts, then close the valve. Sure it is deep but those rov's don't seem to have trouble with that.
Didnt watch the videos of the cutting operations did you ?
Time to make an example out of this tweed bastard. String him up by his nuts.
I agree, let's also do the same to Union Carbide chairman Warren Anderson.
"Based on government estimates of the flow rate, the mangled well could produce oil valued at as much as $85 million over the next 60 days, until a relief well is complete and the well is capped permanently."
Hmmmm, so BP can keep making money off this well until a relief well is complete, a well which BP is drilling. So tell me, what incentive does BP have to complete this well? (Unless, of course, it can then use the relief well to continue pumping the oil.) How much you wanna bet this relief well is gonna take a loooooong time?
Also, the gov't is gonna make money off this pumping scheme, so what incentive does the gov't have to push the capping of this well? Now the picture is getting clearer even as the ocean gets oilier ...
Man, just when you think it couldn't stink any worse, it does ....
This deal makes the bank bailout and the healthcare bill smell like a rose by comparison ....
No much profit there on this one because I hear they have to pay half a million a day to rent the rigs and now they got 2 new ones drilling the relief wells and who knows how much more... But they are so big they make billions every quarter in profit all over the world.
Nobody knows what the damages will be yet or if Criminal charges will be brought... it is gonna be hell on Earth now but not for BP.
We'll See
You may "well" be right, but I think the point is that they have no intention of permanently closing this well and potentially abandoning all the rights that go with it. Sorry, but I still think this is about the money to be made here on "both" sides, even if I haven't gotten the details quite right yet .....
Here is a video superb summary of the BP response and communications to date:
http://www.msnbc.msn.com/id/3036677/#37520427
I am so glad President Obama is going to hold BP responsible for cleaning up the result of their industrial accident that occurred while they were trying to reap a high profit. I do hope he will apply the same standard to Union Carbide who still have not cleaned up the mess they left in Bhopal, India 26 years ago while exploiting cheap labour for their profit.
Some of these comments are hilarious.
Do you not think if BP could have stopped the flow immediately and saved more than $1.2 billion so far they would have. Not to mention the loss of $55billion of their share prices. There has been no mention to say that if the leak was stopped BP wouldn't be able to continue to lease the well. The blow out preventer is there to stop the oil in this situation. BP didn't put the b.o.p. there the drilling company did. Or are some of you suggesting that BP intentionally went down 5000 feet to somehow sabotage the bop just incase there was a disaster. Yes they are making millions of dollars from oil they are now collecting but it is peanuts in comparison to the amout they are losing on a daily basis.
As industrial/ecological disasters go this is huge, but BP have not walked away from it unlike other disasters such as Bhopal.
BP are also continuing to pay out compensation to people whose businesses are directly affected. Sure it is likely to be little relief to most people but they are still there sorting it out. And paying millions to other people to clean it up.
It wasn't even their platform or their workers. If you rent your home and a boiler explodes you don't pay for the clean up the owner of the house does. I'm not saying that they don't have a responsibility to sort it out, they do but they are there trying to put it right.
I don't have any shares and don't care about BP at all but to me it seems that they are trying to put a really shitty disaster right.