BP’s Gulf of Mexico Well is Plugged, Now what?

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(Reuters) – The U.S. government confirmed on Sunday that BP Plc has succeeded in permanently plugged its runaway Macondo well, closing the first chapter in the worst oil spill in U.S. history.

Here are some questions and answers on how things might play out for BP, the U.S. offshore industry and the Gulf’s fragile ecosystem.

What are BP’s Biggest Challenges Going Forward?

* The spill has wiped about $70 billion from BP’s market value and spurred the company to ditch its gaffe-prone British chief executive, Tony Hayward, to be replaced by an American, Bob Dudley.

* BP now faces billions of dollars in fines and penalties from civil and possibly criminal prosecution by the U.S. government. BP has set aside about $32 billion for spill liabilities, but experts say that amount could soar for BP and its partners if they are found criminally negligent.

* BP must defend its dominant North America position — it is one of the largest U.S. oil and natural gas producers and the largest acreage holder in the Gulf of Mexico, which generates a large percentage of earnings growth. BP could have trouble finding partners willing to enter joint ventures for deepwater projects due to a higher risk profile, experts said.

Will BP Tap the Macondo Well in the Future?

* BP has remained mum about its intentions for the Macondo reservoir, which could hold upward of 100 million barrels of oil. In coming years, BP could unveil plans to retap Macondo despite its troubled history, said Eric Smith, associate director of the Tulane Energy Institute in New Orleans.

Especially if oil prices rise, such a plan could gain the blessing of the U.S. government, which might be enticed by the royalties that BP would pay to extract the oil, Smith said.

What are the Long-Term Impacts for Offshore Drilling?

* The Obama administration has slapped a moratorium on new deepwater U.S. offshore oil drilling, spurring some rig operators to set their sights on other offshore basins like Brazil and Africa.

* The spill has fundamentally recast the risk-reward equation for drilling in the oil-rich Gulf of Mexico, long considered a prime target for energy companies looking to escape the political uncertainty of Venezuela and Russia.

* Deepwater operators are having trouble obtaining permits for activities that are allowed under the government’s drilling halt. A return to normal is not seen for years.

* Delays and regulation could add 10 percent to the marginal cost of deepwater oil production, and a one-year delay in nascent deepwater projects could impact global oil supply by 500,000 barrels per day between 2013 and 2017, according to Bernstein Research.

How has the Spill Impacted the Gulf Coast?

* For 87 days following the April 20 Deepwater Horizon rig explosion that triggered the oil spill, crude spewed into the Gulf, contaminating wetlands, fishing grounds and beaches from Louisiana to the Florida Panhandle.

* BP engineers provisionally capped the leak on July 15 and lawyer Kenneth Feinberg is overseeing a $20 billion, BP-funded program to compensate businesses, fishermen and others, some of whom suffered devastating losses.

* NOAA head Jane Lubchenco told a White House briefing on August 4 that: “At least 50 percent of the oil that was released is now completely gone from the system. And most of the remainder is degrading rapidly or is being removed from the beaches.”

* A number of studies have shown that much of the oil that was not captured or burned off was consumed by deep-water microbes, but other environmentalists warn of unknown long-term consequences from the spill.

Article by Chris Baltimore, edited by Philip Barbara, appearing courtesy Reuters.

About Author

Walter’s contributions to CleanTechies over the past 4 years have been instrumental in growing the publications social media channels via his ongoing editorial and data driven strategies. He is the founder and managing director of Sunflower Tax, a renewable energy tax and finance consultancy based in San Diego, California. Active in the San Diego clean technology community, participating in events sponsored by CleanTech San Diego, EcoTopics, and Cleantech Open San Diego, Walter has also been a presenter at numerous California Center for Sustainability (CCSE) programs. He currently serves as an adjunct professor at the University of San Diego School of Law where he teaches a course on energy taxation and policy.