The great Gulf of Mexico oil spill of 2010 is rapidly moving towards the status of the worst accident in U.S. history, as it is clear that with more oil pouring out of the well every day, it will soon surpass the level of the Valdez spill by Exxon Mobil (NYSE:XOM).

IN PICTURES: 7 Forehead-Slapping Stock Blunders

Beyond Environmental Impact
While most of the attention of the world has correctly been focused on the environmental consequences of this spill, the accident has a direct impact on many publicly-traded companies in the energy industry, including the operator of the rig, the rig owner and the oil service companies that provide services on the rig.

Many of these stocks have plunged over the last two weeks as investors overreacted to the possible financial implications of the accident.

Operator
On April 20, 2010, a fire and explosion was reported on a rig at the Macondo Prospect in the Gulf of Mexico on Mississippi Canyon Block 252 operated by BP (NYSE:BP). It's not exactly clear at this point what the cause of the explosion was, but speculation has focused on the blow out preventer (BOP), which is used to control formation pressure on the well.

BP probably has insurance to clean up the oil spill, and if that runs out, the company has deep pockets and can use its owns funds. BP had cash and equivalents of $6.8 billion, and was under-levered with a net debt to capital ratio of 19%, as of March 31, 2010.

Anadarko Petroleum (NYSE:APC) has a 25% working interest in Macondo, but BP, as the operator of the well, has the responsibility for drilling.

Rig Owner
The explosion occurred on the Deepwater Horizon rig, owned by Transocean (NYSE:RIG). The Deepwater Horizon is a semi-submersible that was built in 2001. The rig started working for BP in September 2007, and was contracted out for three years starting at a day rate of $278,000. This day rate escalated during the life of the contract and reached $458,000 per day in March 2008, and was to reach $517,000 per day by the end of the term in September 2010. The rig was insured for $560 million, including costs of removal if needed.

Blowout Preventer
The BOP on the rig came from Cameron International Corp (NYSE:CAM), which was using the Cameron Type TL double blowout preventer with a 18.75 inch bore size and rated up to 15,000 psi. Cameron also provided the Deep Water, High Capacity (DWHC) wellhead connector, which was designed especially by the company for deepwater drilling of the type that BP was conducting.

Halliburton (NYSE:HAL) provided cementing services on the well and completed the final production casing string about a day before the incident occurred. Other major oil service companies operating in the oil rig industry include Schlumberger (NYSE:SLB) and Smith International (NYSE:SII).

Bottom Line
The clean up cost and ultimate liability for the Gulf of Mexico oil spill is unknown at this point, but the market is under going its usual spasm of overreaction, perhaps providing an opportunity for more rational and long term players. (For more information about the economics of natural disasters, refer to The Economics Of Natural Disasters.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Will Virtusa Corporation's Stock Keep Chugging in 2016? (VRTU)

    Read a thorough review and analysis of Virtusa Corporation's stock looking to project how well the stock is likely to perform for investors in 2016.
  2. Stock Analysis

    Analyzing Porter's Five Forces on JPMorgan Chase (JPM)

    Examine the major money-center bank holding firm, JPMorgan Chase & Company, from the perspective of Porter's five forces model for industry analysis.
  3. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  4. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  5. Stock Analysis

    Analyzing Dish Network's Return on Equity (ROE) (DISH, TWC)

    Analyze Dish Network's return on equity (ROE), understand why it has vacillated so greatly in recent years and learn what factors are influencing it.
  6. Investing Basics

    The Importance of Commodity Pricing in Understanding Inflation

    Commodity prices are believed to be a leading indicator of inflation, but does it always hold?
  7. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  8. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  9. Fundamental Analysis

    Performance Review: Commodities in 2015

    Learn how commodities took a big hit in 2015 with a huge variance in performances. Discover how the major commodities performed over the year.
  10. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  3. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  4. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  5. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  6. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center