Can BP Ever Fully Recover From the Deepwater Horizon Disaster?
The 2010 Deepwater Horizon disaster brought BP (NYSE:BP) to its knees. The spill, triggered by an explosion at a deep water rig in the Gulf of Mexico that killed eleven people, was the worst in U.S. history. Millions of gallons of oil polluted marshes, fisheries, and beaches from Louisiana to Florida, destroying wildlife and harming business. To date, BP has sold about $40 billion worth of assets to cover cleanup and legal expenses, to settle civil and criminal litigation with the government, and to compensate victims of the spill. Total spill-related expenses could be as high as $37.2 billion before all is said and done.
It would be a relief for the British oil and gas super-major if these expenses, as grievous as they are, were the end of the story — but the direct costs of the spill are really only the beginning. The asset fire sale and the market reaction to the disaster, which occurred just two years after the climax of the financial crisis, dramatically reduced BP’s market presence. Once the second-largest of the four major oil and gas companies, BP has fallen to fourth place, as measured by market cap.
Moreover, sales at gas stations operated by the company fell as much as 40 percent because of consumer backlash against the company. The company has had to spend aggressively on marketing in order to restore its image, still damaged in the eyes of many, and offered steep discounts in the wake of the disaster in order to retain customers.
Outside of the direct costs of cleanup and litigation, the biggest financial blow to BP may have been its suspension from doing business with the U.S. government. BP was banned from winning new contracts with the federal government in 2012 as the Environmental Protection Agency accused the company of a “lack of business integrity.” That year, before the ban went into effect, BP was awarded more than $2.5 billion in government contracts, according to data compiled by Bloomberg. Now, BP reported a net loss related to federal contracts of $654 million.
Since the ban only affected new contracts and not existing contracts, BP’s distance from the U.S. federal government has grown in spurts. In 2011 the company was actually the largest supplier of fuel to the military. In 2012, BP slid to second place, behind Royal Dutch Shell (NYSE:RDSA)(NYSE:RDSB), which landed $2.86 billion worth of federal contracts.