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.

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. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  2. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  3. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  4. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  5. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  6. Markets

    PEG Ratio Nails Down Value Stocks

    Learn how this simple calculation can help you determine a stock's earnings potential.
  7. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  8. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  9. Investing

    What’s the Difference Between Duration & Maturity?

    We look at the meaning of two terms that often get confused, duration and maturity, to set the record straight.
  10. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  4. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  5. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  6. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>

You May Also Like

Trading Center