Rig disaster hits BP share price

Sunk oil rig in the Gulf of Mexico brings stock down despite net profit increase of 132% for first quarter

With one plunge to the seabed, a stricken oil rig in the Gulf of Mexico has wiped out what might have been a fillip to the share price of the oil giant BP. Britain's biggest oil company yesterday posted a 137 per cent increase in first-quarter net profit to US$6.08 billion (Dh22.33bn) from $2.56bn last year. Revenues rose 55 per cent to $74.4bn from $48.09bn.

The results beat expectations by a wide margin, but instead of opening higher on the news, as some analysts had predicted, BP's shares mirrored the ill-fated Deepwater Horizon oil platform by sinking. It closed yesterday at £6.10 (Dh34.37) on the London Stock Exchange, 2.7 per cent below its close the previous day. "They're a good set of numbers, clearly overshadowed by events," said Tony Hayward, the chief executive of BP. In an e-mailed message to BP staff, Mr Hayward called last Thursday's explosion on the oil platform a "tragic accident".

It has left 11 workers missing, presumed dead, while a continuing oil leak from the uncapped Macondo well more than 1,500 metres under the sea, which the rig had been servicing, is threatening to contaminate 130km of beaches and coastal wetlands in eastern Florida, Mississippi, Alabama and Louisiana. The stricken rig structure lies some way from the well. "We are going to do everything we can: firstly, to control the well; secondly, to ensure there is no serious environmental consequence; and thirdly, to understand how this has occurred and ensure that it never occurs again," Mr Hayward told employees. "I'm sure, like me, you have all experienced a whole range of emotions over the course of the last week - shock and, indeed, anger that the accident could happen; tremendous sorrow when it became evident that the 11 people missing had probably died in the initial explosion; and great sorrow and sympathy for the families and friends of those who lost their lives."

The well blowout at the deepwater drilling platform, which BP had leased from the US drilling contractor Transocean, may constitute the biggest leadership challenge that Mr Hayward has faced since taking the helm at BP in 2007. He has spent the past three years patching up the company's reputation after a fatal explosion at BP's Texas City oil refinery in 2005; an environmentally damaging oil leak the following year from a ruptured pipeline on the North Slope of Alaska; and the public airing of scurrilous details about the personal life of the former BP chief executive Lord Browne, which immediately preceded his resignation as BP's top executive in 2007. Late last week, after the news of the rig disaster, Mr Hayward flew to the US. "We are being very, very aggressive," he said yesterday. "This is the biggest response by anyone in the industry ever, and we're able to do it because we planned for it. We will be judged by our response." The investment bank JPMorgan Chase estimated the incident could cost insurers and reinsurers about $1.6bn.

BP is spending $100m to drill a relief well to redirect the oil flow from the damaged Macondo well, which is leaking about 42,000 gallons per day of crude. But the eventual financial tally to the company from the accident will be far higher. It may include the cost for emergency well shutdown efforts involving robotic submarines; keeping dozens of boats and several planes on standby for months; a marine clean-up operation hampered by rough weather; an extensive shoreline clean-up; legal fees and possibly fines; and financial fallout from damage to the company's reputation.

"The situation in the Gulf of Mexico is now looking more pessimistic and it looks increasingly likely that it will take months rather than days to remedy. Ultimately, the costs associated with this accident will be proportional to the time taken," Dougie Youngson, an oil analyst at Arbuthnot Securities in London told Reuters.

This story has been corrected from an earlier version which wrongly said, because of an error introduced at the editing stage, that 42,000 barrels per day of crude oil were escaping from the Macondo well.