Business & Media Institute
June 9, 2010
We’ve heard politicians, even conservative Republicans, suggest BP would be held completely responsible for the devastation caused by the oil spill plaguing the Gulf of Mexico, even if it means its very existence.
That in fact might be the case for BP as the magnitude of the spill increases day by day according to energy investment banker Matt Simmons, the chairman emeritus of Simmons & Co. International. Simmons, in an appearance on CNBC’s June 8 “Fast Money” said in the long-term this would force the country to reevaluate how oil drilling and exploration would be done in the United States.
“It’s almost a certainty that we’re going to step back and say we didn’t have the toolkit to safely go to these water depths, let alone go to these ultra-deep highly pressurized formations,” Simmons said. “I think once the moratorium ends, we have to build a new generation of equipment. So this, these rigs will all migrate to the international markets, to Turkey, to the Black Sea. Brazil could use every deepwater rig. I think the service companies are going to be exonerated when this is all through because it was all BP’s fault.”
But when Simmons was asked how to play this in market terms, he declared that BP would cease to exist as a company.
“I think BP’s not going to last as a company more than a matter of months,” Simmons said.
The reason – BP is in way over its head when it comes to cleaning up the mess. He explained it wasn’t feasible the oil giant could possibly clean up something of this magnitude.
“President Obama got in writing out of Tony Hayward that he would clean up the Gulf of Mexico,” Simmons said. “Tony Hayward, BP has been trying to convince the world the drilling riser is where the leak was. It’s seven miles away where there’s an open hole blowing 120,000 barrels a day. It’s spreading out to be larger than the state of Washington.”
Simmons told “Fast Money” viewers he would be “surprised” if BP were still a publicly traded company by the end of the summer. He explained the mess exceeds their capability to clean it up.
“Well, first of all, they promised in writing that they’re going to do this,” Simmons said. “They can’t clean up the Gulf of Mexico.”
As for the $75-million liability cap – Simmons said it no longer holds for BP, especially since Hayward has acknowledged in writing they would be responsible for the mess.
“That’s been taken away,” he said. “That was actually done after the spill in Valdez. And they put a cap on because there were only minor independents doing any drilling left.”
And Simmons said BP was to blame for not being up front about the spill. According to the energy investment banker, holding the drilling equipment provider responsible won’t be possible once all the facts are laid out.
“Well, first of all, what BP’s management tried to do is basically create a fraud that it was only the drilling riser where the oil was,” Simmons said. “These research vessels that finally discovered this were being highly discouraged by BP management from coming in and getting anywhere near it. They said it’s just a distraction.”
Simmons explained the only oil left in the Gulf of Mexico was in deepwater areas and the fact it had to be drilled for so far below surface is why there’s such a high amount of pressure.
“That’s the only stuff left in the Gulf,” Simmons said. “And then it’s not the 5,000 feet. It’s that they went down through 18,000 feet of rock, which is why the pressures were so high when they finally hit oil.”
This article was posted: Wednesday, June 9, 2010 at 4:00 am