What started as a celebration has become BP’s worst nightmare…
By now, you’ve probably heard about the BP bigwigs that were aboard the Deepwater Horizon when it exploded on April 20, 2010. They were celebrating the rig’s safety record.
Here we are, one month later, and we’re still waiting for some good news.
To be honest, I feel like I’ve seen this story before — and I’m not referring to the Exxon Valdez spill, although that often comes to mind…
For some reason, the daily news feed from BP is more akin to the actions of Wile E. Coyote.
The company is trying every trick in the book to stop the leak.
I’ve come to that conclusion after catching wind of the latest plan.
It’s a plan that has never been attempted before — but to be fair, I can’t think of the last time a well located 5,000 feet underwater was leaking thousands of barrels of oil into the ocean.
BP pulls the plug on offshore spill
Three weeks ago, BP announced it had stopped the flow of oil from one of the leak points.
Last week, the plan was to connect an insertion tube to Horizon’s riser. A few days later, BP announced the tool was collecting approximately 2,000 barrels of oil per day.
Also on their to-do list was to lower a small dome onto the leak. (By small, I mean a 100-ton, four-story concrete dome.) The dome’s failure to contain the spill hit BP hard.
Can’t you just feel BP’s frustration reaching a break point?
If you think this situation can’t get much worse, think again…
If this effort fails, prepare for the worst
The latest plan out of BP’s Acme playbook is their “top kill” operation.
What exactly is a “top kill” operation?
The plan involves injecting the leaking well with heavy drilling fluid. Hopefully, it will be enough to stop the oil flow. If successful, BP will then seal the well using cement, effectively plugging the hole.
Like nearly every other plan they’ve tried, I keep hearing the same recurring excuse: “This has never been tried in water this deep.”
Their engineers aren’t sure if this week’s “top kill” operation will even work. At this point, BP looks desperate to try anything… And if the “top kill” operation fails, prepare for the worst.
BP is already doing so. I call it the “back-up back-up plan.”
Assuming all else fails, BP began drilling its first relief well on May 2. Drilling of the second relief well began on May 16. Re-entering the well will allow BP to control the problem well. Unfortunately, each relief well takes up to a month to drill.
So if the “top kill” operation fails, we would have to wait at least a week or two before the first relief well is finished.
So far, the spill has cost BP more than $760 million. Some are speculating that cleanup costs could easily be over ten billion dollars when all is said and done.
Abandon all hope, ye who drill offshore
Either way, there’s an air of uncertainty in offshore drilling.
But that’s to be expected — right?
You can’t blame the opponents of offshore drilling for using the Horizon accident to spin their own arguments for an overall ban. Some groups in Alaska have already tried to stop offshore ventures (without success, I might add).
However, not everyone is hanging their offshore rigs out to dry…
Brazil is going forward with plans to develop their offshore Franco field. As you might recall, the Franco field is Brazil’s second-largest oil discovery. The Tupi field remains the largest. A recent report stated the amount of recoverable oil from the Franco field is approximately 4.5 billion.
Then again, we won’t see a drop of Franco oil for another 5-10 years.
For us, however, we’ll have to think twice before joining Brazil’s optimism. If you add the recent market volatility to the mix, offshore drillers have taken a double hit.
Take a look for yourself:
It’s difficult to predict how effective BP’s cleanup efforts will turn out, especially considering that these operations have never been conducted in water that deep.
Although oil prices are slowly trading higher today, it’s important not to rush things. And until BP gives us some better news about the spill, it only makes sense to start looking elsewhere — if you haven’t already.
To help you get started, this special report highlights some of the best onshore plays available to investors like us.
Until next time,
Editor, Energy and Capital
P.S. A few of you have been asking where they can go to find up-to-date information on the Gulf cleanup efforts. I find the best way to stay on top of BP’s efforts is through their main site. You can find it here.