Cost of Gulf Oil Spill Mounts as BP, U.S. Government Errors Complicate Cleanup

As the clock on the Gulf oil spill ticks past 60 days, the costs are approaching
$22 billion, with no end in sight.  Now, there is growing evidence that errors committed by both the U.S. government and BP PLC (NYSE ADR: BP) may have complicated efforts to clean up the mess.

The Coast Guard and BP each had written plans for responding to a massive Gulf oil spill, but both now say their plans failed to anticipate such a disaster threatening so much coastline at once. Furthermore, a miscommunication and disagreements between officials on federal, state, and local levels resulted in a lack of coordination and delays.

The federal government, which under the law, is in charge of fighting large spills, "had to make things up as it went along," The Wall Street Journal reported.

Federal officials changed their minds on key moves, sometimes more than once. Chemical dispersants to break up the oil were approved, then judged too toxic, then re-approved. The Obama administration criticized, debated and then partially approved a proposal by Louisiana politicians to build up eroded barrier islands to keep the oil at bay. And critical mistakes were made in deciding where and when to lay the boom designed to keep the oil from reaching shorelines and precious wildlife breeding grounds.

In the initial days after the spill, contractors were hired by BP to lay boom east of New Orleans.  But rough seas convinced the contractors to mostly stay ashore, forcing local shrimp fisherman, who had no experience in laying boom, into action.

To make matters worse, the government didn't have the right kind of boom.  The contractors had adequate supplies of boom made for flat, open water, but they lacked even minimum supplies of boom built for the open ocean and its rougher seas, The Journal reported. 

After Alabama authorities scoured the globe for the kind of boom they needed, they found it in Bahrain and flew it to the Alabama coast. Days later, the Coast Guard gave it to Louisiana.

Alabama Governor Bob Riley was furious. The Coast Guard and Alabama authorities instead deployed lighter boom. And on June 10, oil breached Alabama's Perdido Bay, an important fishing and tourism inlet.

"We have to learn to be more flexible, more adaptable and agile," says Coast Guard Adm. Thad Allen, the federal government's response leader, told The Journal.

Because two decades have passed since the Exxon Valdez oil spill in Alaska, he said, "you have an absence of battle-hardened veterans" in the government with experience fighting a massive spill, he said. "There's a learning curve involved in that."

BP and the government now are struggling to patch up an acrimonious relationship that has left both parties scrambling to quell the public uproar over the lack of progress in cleaning up the spill.

BP Chief Executive Officer Tony Hayward said yesterday (Thursday) that he was "deeply sorry" for the explosion and spill when he testified before Congress.  His testimony came a day after a White House meeting with President Barack Obama, where the company announced it would suspend its dividend for the rest of the year and create a $20 billion fund to cover costs related to the Gulf spill. 

The concessions prompted Obama to say BP is a "strong and viable company, and it is in all of our interests that it remains so."

However, U.S. Rep. Joe Barton, R-TX, said the fund amounted to a "shakedown."

"It is a tragedy of the first proportion that a private corporation can be subjected to what I would characterize as a shakedown, in this case, a $20 billion shakedown," Barton said in opening statements to the Congressional committee before Hayward's testimony.

Meanwhile, shares of BP rebounded in London trading and the cost to insure its debt fell on the news of the dividend suspension and the cleanup escrow fund. Shares were mostly flat in New York Stock Exchange trading. BP stock has slumped 45% since the Deepwater Horizon rig exploded on April 20, wiping about $81 billion off the company's market value.

BP so far has spent about $1.6 billion on containing and cleaning up the spill. The company's spending for cleanup and liabilities may reach $40 billion, Standard Chartered PLC estimated last week.

Yesterday's U.S. stock market reaction may have been muted by the latest in a series of public relations blunders by BP.

In a speech announcing the company's newest efforts to appease American frustration with the lack of progress on the cleanup, BP's Swedish Chairman Carl-Henric Svanberg continued the pattern.

"I hear comments sometimes that large oil companies, or greedy companies, don't care. But that is not case in BP, we care about the small people," Svanberg said in an emotionless drone.

Needless to say, assurances from the tall Swedish millionaire that he will take care of them did not go down well with the small people themselves and eroded the goodwill BP had just purchased for a hefty $20 billion price tag.

Svanberg later apologized for his clumsy choice of words, and a BP spokesman attributed it to an error in translation.

News & Related Story Links:

• Wall Street Journal:
  Slippery Start: U.S. Response to Spill Falters
• Bloomberg:
  BP's Spill Fund a $20 Billion Shakedown, Barton Says
• Bloomberg:
  BP Rebounds on Agreement to Phase Oil Spill Payments
• Wall Street Journal: 
  Lost in Translation: BP vs. the Small People
• Washington Post:
  BP chairman talks about the 'small people,' further angering gulf
• Money Morning Archives:
  Gulf Oil Spill