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BP’s reputation at risk after oil rig explosion

Daily Telegraph

Tony Hayward is at the centre of his first major crisis as chief executive of BP, after a drilling rig the company hired exploded in the Gulf of Mexico.

By Garry White
Published: 6:19PM BST 23 Apr 2010

The rig, called Deepwater Horizon, was owned and operated by Transocean. Eleven of the Swiss-based company’s staff are still missing.

BP has sent a flotilla of 32 ships to help to clean up the resulting oil slick. The US Coast Guard says about 200 barrels of oil were spilled and there was no oil escaping from the well the rig had tapped.

“We are determined to do everything in our power to contain this oil spill and resolve the situation as rapidly, safely and effectively as possible,” Mr Hayward said. “We have assembled and are now deploying world-class facilities, resources and expertise, and can call on more if needed.”

Mr Hayward has worked particularly hard to restore the reputation of BP in the US since he took the helm at the oil major three years ago. An explosion at its Texas City oil refinery in 2005 killed 15 Americans and injured almost 200 – resulting in significant damage to the company’s reputation.

In October 2007, the US Department of Justice levied a record $50m (£32.6m) fine after its investigation into the Texas City explosion after BP admitted it had inadequate procedures. It also paid a $303m fine for manipulation of the propane market and $20m for pipeline leaks at the same time.

The cause of this week’s blast is currently unknown but “it’s probably nobody’s fault,” Christine Tiscareno, an oil analyst at Standard & Poor’s said. “Even though operationally and ethically the company has turned around, this may pull it back.”

Under the US’s Oil Pollution Act, the owner or operator of a facility from which oil is discharged is liable for the costs of the cleanup and any resulting damages. The licence in the area was owned by BP, making it responsible.

“Although there may not be a direct impact on the financial performance, the big risk for BP is management time – and this is costly, Russell Corn of business intelligence group Diligence said. “The board should be focused on running the business and improving shareholder value – instead they could end up spending time on reputation management.”

The accident is unlikely to dampen oil group’s plans in these dangerous environments. “The IEA forecasts that 50pc of energy needs for the next 30 years will have to come from oil & gas,” says Lloyd Slater, a spokesman of the International Association of Oil & Gas producers. “All this oil will have to be found – and that means deep water will have to be drilled.”

President Obama also said that he would not reconsider his plans for more offshore drilling following the accident.

BP shares rose 3.3 to 639.7p. In New York, Transocean shares fell $2.32 to $87.97 in early trade.


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