One Year Later, Where Does BP Stand?

BY Murrey Jacobson  April 26, 2011 at 5:41 PM EST

In the weeks after the magnitude of the Gulf oil spill became ever larger and clearer, most of the attention was focused on the growing environmental impact. But many people soon began asking another question: Would the disaster change the very future of BP, one of the largest oil companies in the world? Some even wondered openly whether it could eventually spell the demise of BP.

A year later, BP is still in the crosshairs of many. And anger against the company has not subsided along the Gulf Coast (as you can see in Tom Bearden‘s story on Tuesday’s NewsHour). But BP is doing better than many had expected last spring and summer.

Sure, the company has taken a hit: It’s sold important assets to pay for damages. It’s lost tens of billions of dollars of value at a time when its rivals are doing better. Many experts remains skeptical about its resolve to improve safety and deepwater drilling. But for all that, analysts say BP is still a massive oil company that remains well-positioned to drill again in the Gulf, that already restored its dividend in February and is now signing contracts to explore new territory around the world.

“It’s obviously still a formidable company with a market value of $140 billion around the world,” said Fadel Gheit, an oil analyst with Oppenheimer. “The demise of BP was greatly exaggerated by some. Will BP go under? No. Does BP still have trouble? Yes, but it’s manageable trouble.”

That trouble includes compensation claims that may not be resolved for years and a big drop in shareholder value since the Macondo well blowout. The numbers are staggering, including:

– Almost $50 billion in lost market value. Its rivals’ stock is up almost 15 percent, while BP’s has been down roughly 25 percent. Shares that were worth $60 a piece on April 20, 2010, are worth $46 today.

– Sales of $24 billion of the company’s assets to be set aside to help pay for claims and other costs. Gheit said roughly 10 percent of BP’s production and reserves were sold last year. Another $6 billion worth are expected to be sold this year.

– $3.8 billion paid out in claims so far. That’s part of a $20 billion fund set aside under pressure from the government last year.

– Liabilities could swell by tens of billions more. If BP is found to be criminally negligent (several investigations and reports have yet to be completed), the price tag could exceed $50 billion. (Contending their equipment and work played a major role in the cause of the accident, BP is suing Halliburton and TransOcean for billions of dollars as well.)

“It knocked them for a loop, but they have plenty of cash on hand,” said Robinson West, an analyst with PFC Energy.

Nor is BP shy of ambition, West and others said.

For one thing, American-born CEO Bob Dudley (who replaced Tony Hayward last October after he angered residents with his comments) is not necessarily focused on making BP a larger company but one better positioned to be efficient and to find new sources of revenue.

BP has signed energy exploration deals in Australia, China, India and West Africa. It’s continuing to pursue a major deal off the shores of Russia in the Arctic Sea (that one remains in limbo). And Bob Dudley is ensuring that BP will maintain a dominant role in deepwater drilling in the Gulf and is seeking new permits from the Obama administration.

“He cannot abandon the Gulf because it is the backbone of the company,” said Gheit. “BP has more production and platforms than other companies in the Gulf. And the most profitable barrel of oil they bring into their portfolio is from the Gulf…When oil is $100 a barrel, they make $30 a barrel on oil from the Gulf. Their margins are less than half of that elsewhere.”

For all of those plans, BP still faces a formidable series of challenges.

In the wake of the deadly Deepwater Horizon disaster that killed 11 people and fouled the Gulf with more than 200 million gallons of oil — and prior to that, the Texas City facility where 15 people were killed in 2005 (the facility was sold off recently for more cash on hand) — the company must persuade the public and investors that it is committed to a safer culture when it comes to oil production.

West said of Dudley and BP: “Trust me, they have religion. They do not want another spill.”

But there is considerable skepticism.

David Pettit, a senior attorney for the Natural Resources Defense Council, or NRDC, said he is not convinced.

“I haven’t seen any evidence,” he said. “If you look at the permit applications in the Gulf that have been granted recently, they rely on the same defective blowout preventer that they had at Macondo. In terms of taking a lesson, I don’t think of the major companies have taken a lesson yet. I wouldn’t set BP apart from Shell or any of the other big companies.

“I’ve read about a tabletop exercise that one of these companies put on” to simulate another spill, Pettit said. “That does not give me a lot of confidence that this is going to work under the water at 10,000 feet. There are things that could have been even worse (with the Macondo accident). What if the well collapses? What if the blowout preventer gets blown a mile away the next time?”

“This is something the company really has to do — show that they are in the forefront of safety,” added Gheit. “You can study things, but when you take the test of safety, I want to see the report card of how they actually do.”

For his part, Dudley is getting decent reviews from the analysts who watch the industry.

Robert Dudley

“I think he restored confidence in the company, inside and outside,” said Gheit. “He’s a very quiet guy but very determined. He’s got a very clear vision of what BP is and what it should be.”

“I think Bob Dudley is very good under pressure, he’s a very cool customer,” said West. “But he’s got to overhaul the company internally and help the company get its confidence back. That’s a big task and it doesn’t happen overnight.”

And what of Tony Hayward a year later?

The Telegraph in London reported recently that BP’s board is looking to replace Hayward from his role in a joint Russian energy venture with BP. Should that happen, the newspaper reported, it would “sever his last formal link with BP.”

Analysts say Hayward will never run a major oil company again but also says Hayward’s career is hardly done.

“He’s raising a billion dollars and starting a fund to invest in the industry in London,” is how one put it to the NewsHour. “He’s very knowledgeable and has a lot of connections.”