What Was the BP Oil Spill?
Also known as the Deepwater Horizon spill or the Gulf of Mexico oil spill, the BP oil spill was the largest in U.S. history. The cause of the discharge was an explosion on British Petroleum's Deepwater Horizon oil drilling rig in the Gulf of Mexico on April 20, 2010. That explosion resulted in 11 deaths and the release of millions of barrels of crude oil into the Gulf over 87 days. The well was capped on July 15, 2010.
Understanding the BP Oil Spill
Offshore drilling contractor, Transocean (RIG), owned the drilling rig involved in the BP oil spill and had leased it to BP to explore Macondo Prospect. Macondo is an oil field off the coast of Louisiana. Before being capped, the well spilled 3.19 million barrels of oil into the waters of the Gulf and onto the shorelines of Florida, Alabama, Mississippi, Louisiana, and Texas. The spill devastated the fishing and tourism industries of the Gulf Coast region and caused the death of countless numbers of marine life and seabirds, many of which were endangered species.
- The BP oil spill was the largest spill in history.
- It unleashed more than 3 million barrels of oil into the Gulf of Mexico.
- The environmental impact on fish and seabirds was devastating, while many individuals that worked in fishing and tourism could not meet their financial obligations.
- The spill resulted in substantial losses for BP in 2010, and the company's CEO left his post that same year.
- Negative public relations took a toll on BP as well, but the dire financial situation began to improve in late 2010.
In 2011, the government listed the causes for the explosion:
- Defective cement on the borehole
- Failure of two valves, a gas alarm, and battery backup systems
- Misinterpretation of pressure tests
- Insufficient management and industry oversight
BP pled guilty to 14 felony charges from the U.S. Department of Justice (DOJ) and paid fines of more than $4 billion on settling the case in 2012. Those fines, plus payments to settle various civil claims, cost BP more than $40 billion. In 2013, Transocean pled guilty to criminal charges and a misdemeanor violation of the Clean Water Act and paid over $1 billion in civil and criminal fines.
The BP oil spill brought significant pressure on the company to, not only mitigate its impact during drilling, but also to manage substantial negative publicity in the months and years following the spill. The settlement, which finalized in April 2016, became the most significant environmental settlement in U.S. history.
During the spill, the government temporarily halted all offshore oil drilling activities, which threatened the jobs of thousands of offshore oil workers in the Gulf region. The jury is still out on the lasting economic and environmental effects of the BP oil spill. Many of the individuals who were without work in the fishing, tourism, and oil industries could not meet their personal financial obligations, which caused a cascading effect throughout the region. Also, concerns remain about oil that sunk to the floor of the Gulf and the retardants used to mitigate the disaster.
The Restore Act of 2012 set aside 80% of the BP oil spill settlement funds for Gulf states' ecological and economic recovery. The remaining 20% of funds went to the Oil Spill Liability Trust Fund, established in 1986. The Trust assists in the removal and assessment of damage from oil-related activities.
BP Profits and Stock Price
The oil spill significantly disrupted BP's financial performance, and its stock price, as news continued to spread on the extent of the disaster. From late April of 2010 through June of that year, BP common stock lost more than half its value. As traders hurried to divest themselves, the number of shares traded jumped from a few million per day before the spill to hundreds of millions of shares per day in the weeks that followed.
In July of 2010, British Petroleum reported a record quarterly loss of $17 billion as it set aside about $32 billion to cover spill-related costs. The company announced that its CEO, Tony Hayward, would be leaving his post later in the year. The company also suspended dividend payments until early 2011.
Some BP gasoline station owners in the U.S. reported declining sales and attributed that trend to negative publicity for the BP brand associated with the disaster. However, by Nov. 2010, the company began reporting profits again, announcing earnings of $1.8 billion for the quarter ending in September of that year. Although that was significantly less than the approximately $5 billion in the same quarter in 2009, it represented a turnaround in the company’s financial performance.