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The US falls outta love with Big Oil

Daily Telegraph: The Gulf of Mexico was meant to be America’s the new frontier, where oil companies bankrolled a new black gold-rush.

By Rowena Mason
Published: 6:00AM BST 11 Jun 2010

The US falls outta love with Big Oil

This remote, watery landscape is where BP boasts a fifth of all deepwater platforms, a new well as deep as Mount Everest and billions of barrels in oil reserves.

Over the last decade, it has been clear why BP was attracted to spend $115m (£78.2m) a week in the US on finding new prospects. George Bush, a Texan oilman himself, championed the region and gave special exceptions to the ban on US offshore drilling to all the energy majors from Exxon and Chevron to BP and Shell.

America was safe. Rebel militia were trying to remove Shell from Nigeria, the Russians were making life difficult for BP in Siberia and Middle Eastern countries such as Iran, Iraq and Saudi Arabia were too politically hostile to enter.

But the US, with its mantra of “drill, baby, drill”, was the place BP chose to bet a bulk of its future, producing 25pc of its oil and 33pc of its gas from the continent. The landscape is looking very different today – 50 days after the Deepwater Horizon rig sank off the US coast, killing 11 men and triggering a catastrophic leak.

“The change is quite incredible and all the risk is above ground, political risk,” said a fund manager at one top 20 BP shareholder, himself an American. “The kind of kick-ass, tub-thumping language we’re hearing from Obama you’d more expect to come out of the mouth of Putin.”

President Barack Obama has personally lambasted BP’s chief executive, Tony Hayward, threatened legal action to prevent dividend payments and promised to keep a boot on the oil giant’s throat. More worryingly for the industry as a whole, he has also banned new deepwater drilling in the Gulf of Mexico, and put plans to open up swathes of eastern and Alaskan coastline on ice.

But the President’s heart has never been with the oil men like his predecessor. Throughout his election campaign, Mr Obama repeatedly said he would not consider opening up new areas to drilling. The US leader is said to have only changed his mind as a concession to his political rivals, as he struggles to get a bill on tackling climate change through the senate.

However, it is too easy to write off BP’s fortunes in America as a victim of President Obama’s political posturing, according to Tom Bower, the author of The Squeeze: Oil, Money and Greed in the 21st Century.

“I think BP had this coming,” he says. “They have three other accidents in the past and BP didn’t move fast enough on safety and cut too many costs. It is very unlikely, from what I’ve seen in Houston, that either Exxon or Shell would have had a disaster like this.”

While BP might be a by-word for stable dividends and a bastion of engineering prowess in the UK, its reputation was tarnished in America even before this oil spill.

It is five years since BP’s Texas City refinery exploded, killing 15 workers and injuring 170 others, after multiple safety breaches, and four since the decaying, neglected Prudhoe Bay pipeline spilt 200,000 gallons of oil across Alaska.

Then there was a series of technical hitches at its Thunder Horse platform, owing to engineering concerns, which delayed the start of 300,000-barrel-per-day production at the world’s largest offshore well.

Mr Hayward has emphasised an improving safety record, and more than $1bn spent on upgrading refineries. But largely unnoticed in the UK, BP has been hit with more damning reports of safety infractions at Texas City in the last few years and a slow drip of lawsuits alleging negligence.

It is only nine months since a US safety watchdog found 439 current “wilful and egregious” safety violations at BP’s US refineries which “if unaddressed could lead to another catastrophe”.

Against this backdrop, the cries against BP are getting louder and more aggressive, with former US Labor Secretary Robert Reich recommending that the company’s operations be put into receivership. Other politicians have advocated asset seizure without compensation.

The other action America could take is a process called debarrment, where companies are prevented from bidding for government contracts. As the largest supplier of oil to the US army, this would hit BP hard. But it would be even worse if the ban included working on any government land, since all of BP’s prospects are exploited under lease from the state.

Since the financial crisis ushered in a new era of state intervention, with the rescue of AIG and restructuring of General Motors, the US people are used to strong political arms.

Only days ago, City analysts were rubbishing suggestions BP’s assets could be taken over or its US units forced into bankruptcy protection. Now Richard Griffith, of Evolution, concedes: “Unilateral action against its US operations, be it unreasonable or illegal, hangs over BP.”

But other observers point out that the gas-guzzling US needs BP’s ability to fill up its four-wheel drives almost as much as the oil giant needs the US.

Estimates suggest that if there is no new drilling, consumer energy costs will rise by 5pc per year, costing $2.35 trillion over the next decade. This would be exacerbated if the moratorium on new offshore deep-water drilling continues.

BP, which has the biggest presence in the Gulf of Mexico, supplies the world’s biggest consumers of petrol with 12pc of their demand – more even than Exxon.

“The US seems to be making out it’s far easier to slot BP out of its production than it actually is,” says Jason Kenney. “It’s just not possible, given that BP is one of the biggest oil players in their country.”

Useful related websites

BP’s own response site

US Dept of the Interior response site

The Deepwater Horizon Oil Spill and its Aftermath (very comprehensive):

What You Need to Know about Mercury in Fish and Shellfish

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