GULF OF MEXICO -- "It felt very good not to see any oil going in the Gulf of Mexico," BP Plc's senior vice president Kent Wells said Thursday during the afternoon briefing on the oil spill in the Gulf of Mexico, during which he announcedtentatively and cautiouslythat the leak had been stopped as part of a well integrity test, a Morgan Keegan/CSP Daily News Flash reported just minutes after the results were announced. Wells emphasized, however, that he was not yet prepared to declare success.
The Deepwater Horizon rig exploded April 20, killing 11 workers. And the [image-nocss] resulting oil spill has impacted the gulf environment and wildlife. Beyond those tragedies, it has sent ripples through financial markets and the petroleum and convenience store industries in the form of speculation over the fate of BPwould it file for bankruptcy, be taken over by another major oil company or be sold off in pieces? And consumer groups and others have triedwith debatable degrees of successto incite boycotts of BP stations at the retail level, prompting BP to reach out with financial assistance to its branded retailers.
The well integrity test lasts at least six hours and could last up to 48 hours, the company said in an email update. "During the test, the three ram capping stack is closed, effectively shutting in the well, and all subsea containment systems...have been temporarily stopped. Although it cannot be assured, it is expected that no oil will be released to the ocean during the test. Even if no oil is released during the test, this will not be an indication that oil and gas flow from the wellbore has been permanently stopped." it said.
Wells (pictured) said, "The well was fully shut in [at] approximately 2:25 [Thursday] afternoon and as of that time there is no flow of oil going into the Gulf of Mexico. So obviously this is an encouraging point of time. Remember this is the start of our test.... We will be monitoring the pressures carefully and every six hours we'll consult between our engineers and scientists and government scientists and make decisions to continue forward with the test. Or, if at any point we feel the test needs to be suspended, we will do that."
He added, "I think for the people living on the Gulf, I'm certainly not going to try to guess their emotions. I hope they're encouraged that there's no oil going in the Gulf of Mexico, but what we have to be careful about is depending on what this test tells us, we may need to open the well back up. We may need to go back with our containment options which we're continuing to progress to be prepared in all scenarios and as soon as we think it's appropriate, we'll immediately start drilling the relief wells again. So I think at this point I would encourage them to perhaps be encouraged, but let's do the test and let's see what it tell us."
Click here for the full transcript of the briefing.
Click here for BP's response website. Also click here.
President Obama on Thursday said it was a "positive sign" that oil appears to have stopped gushing out of the leaking well, reported Dow Jones. He said he would have more to say on the topic today.
Before yesterday's events, a report by The Sunday Times of London, cited by The San Francisco Chronicle, said that Exxon Mobil Corp. "has sought clearance from Washington to examine a bid for BP." Quoting unnamed oil industry sources, it added that the Obama administration had told Exxon "and one other American groupthought to be Chevronthat it would not stand in the way of a deal that could value BP at up to 100 billion pounds" ($153.8 million U.S.).
"The rumor mill continues to turn, but the tone has shifted. Instead of feverish speculation about bankruptcy, now there is rampant speculation about a buyout of the company. Both of these extremes show how finicky the market is. It's fear and two weeks later it's greed," Molchanov said.
And a recent research note by JP Morgan Cazenove Ltd. analyst Fred Lucas said BP is a prime candidate for a buyout. "The market has lost sight of the intrinsic value that is resident in an asset-rich company like BP. We very much doubt that keen-eyed industry players have lost sight of BP's value," Lucas wrote. He named Exxon Mobil Corp. and Royal Dutch Shell as the most likely bidders.
But energy industry analysts put little stock in the BP takeover rumors, said the report. "I put low credibility on the notion of an outright buyout of BP," Pavel Molchanov of Raymond James told the Times.
The European Union and, to a lesser extent, Washington would have serious antitrust concerns if ExxonMobil, Chevron or any of the other major oil companies combined its refining and marketing operations with BP. Such a merger would create the world's largest refiner by far, he said.
Also, any company that took over BP would also be taking on Gulf spill liabilities, which will not be known for years. Molchanov said he can't see Chevron or Exxon, which are "pretty conservative companies," putting themselves "into this legal nightmare."
Fadel Gheit, an analyst with Oppenheimer & Co., said a merger of BP, which has about 23,000 U.S. employees, with ExxonMobil or Chevron would not be "politically correct" because it would cost so many jobs. After Exxon bought Mobil, it shed 50,000 jobs over three years, he told the newspaper.
The U.S. government might be willing to champion an ExxonMobil or Chevron takeover if BP was not cooperating with it. But BP "has done everything they asked them to do and more," Gheit added.
BP has agreed to put $20 billion into an escrow account for cleanup and compensation claims, suspend its dividend and pay $100 million to rig workers laid off as a result of Obama's drilling moratorium. U.S. law limits economic liabilities in oil spills to $75 million but BP voluntarily agreed to waive that limit.
"As long as BP has enough assets [to survive], it's easier for the government to take on BP now. It would be harder to take on BP as part of a bigger company," Gheit said.
Molchanov said he can't see any reason why the government would approve a takeover unless it thought BP was at risk of bankruptcy. For now, that does not seem likely, analysts said.
Although nobody knows how much the oil spill will cost, most estimates range from $10 billion to $70 billion, Philip Weiss, an analyst with Argus Research, told the paper. The highest estimate he saw was $560 billion, but he considers that an outlier. BP generates about $30 billion a year in operating cash flow.
Gheit said it could sell $30 billion to $40 billion in assets to pay damages. If it sold all of its assets today, the "theoretical value" would be $350 billion, said the report.
Weiss said he thinks BP can survive as a standalone company. That could change, he said, if the relief-well efforts are unsuccessful.
Although a wholesale takeover of BP is not likely, analysts said that ExxonMobil, Chevron and every other major oil company are potential bidders for pieces of the company.
BP has said it plans to sell $10 billion in assets over the next year to help pay for the gulf disaster.
Spokespersons for Chevron and ExxonMobil declined to comment on the takeover rumors, said the Times.
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