BP oil spill 2010: How much will it cost?
Oil spills are expensive. Nearly two weeks after a massive explosion in an oil rig killed 11 workers and triggered a massive oil spill in the Gulf of Mexico, the cleanup and other associated costs are rapidly mounting and, by one estimate, will total at least $12.5 billion.
That would be nearly 80 percent higher than the cost of the Exxon Valdez spill in Alaska in 1989.
On Monday, the Gulf rig's owner, British Petroleum (BP), announced that it will pay for the cleanup.
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鈥淏P takes responsibility for responding to the Deepwater Horizon oil spill. We will clean it up,鈥� the company said in a statement, adding that it will pay 鈥渁ll necessary and appropriate clean-up costs.鈥�
If the 1989 Exxon Valdez spill is any indication, BP鈥檚 bill will be big.
鈥淥h I think it鈥檒l be huge,鈥� says Robert Eisenbeis, chief monetary economist for Cumberland Advisors, a market-analysis firm. 鈥淭he question really is, 鈥楬ow big is big?鈥� 鈥�
BP is already spending between $6 million and $7 million per day on cleanup. That doesn't include state and federal spending 鈥� including the deployment of thousands of National Guard units to the Gulf 鈥� that BP will likely be held responsible for.
So what鈥檚 the bill?
鈥淚 don鈥檛 think anybody knows at this point,鈥� says Mr. Eisenbeis. 鈥淲e don鈥檛 know when the gusher is going to be capped. Every day it goes on longer than anticipated, more and more [the costs mount].鈥�
For starters, BP is looking at $12.5 billion, minimum, says David Kotok, chairman and chief investment officer of Cumberland Advisors.
鈥淭his will be a financial calamity for many firms, not just BP and its partners and service providers,鈥� he said in a statement. 鈥淭heir liabilities are immense and must not be underestimated. The first estimate of $12.5 billion is only a starter.鈥�
Included in that $12.5 billion in potential costs is a laundry list of expenses, says Eisenbeis.
Depending on how the situation unfolds, the oil behemoth may be footing the bill for costs of drilling and capping spill, costs associated with containing and picking up oil that has been spilled, damages to wildlife, damage to commercial fisheries, damages involving tourism and recreational industries, costs associated with disruption of shipping.
That鈥檚 not to mention litigation costs and fines, adds Eisenbeis.
There are questions as to whether BP may have violated US safety regulations, and a number of private citizens affected by the spill are organizing class action lawsuits.
鈥淭hese are all things that can really bump costs up,鈥� says Eisenbeis. 鈥淚t鈥檚 obviously going to be greater than Exxon Valdez,鈥� he says of the 1989 oil spill that cost Exxon more than $7 billion. 鈥淭hat鈥檚 because of the sheer volume pumping into the Gulf right now and the fact that Exxon Valdez was a known volume on a ship, whereas this is an unknown volume.鈥�
The question is whether BP will actually pay, and how much.
鈥淥f course, BP鈥檚 a foreign company and we don鈥檛 know to what extent there might be some indemnification provided by British government,鈥� says Eisenbeis. 鈥淚f Britain backs [BP] up because it鈥檚 deemed too big to fail, costs may be shouldered by British taxpayers.鈥�
BP鈥檚 cleanup costs are still hazy, but costs to BP are clear as day: The 52-week high for the oil behemoth鈥檚 stock is $62.38. Monday morning鈥檚 trading low? $47.82.
