BP stopped the flow of oil spilling from the Macondo well into the Gulf of Mexico for more than 15 hours during a well integrity test, indicating that it has finally succeeded in controlling the well. We caution that BP is not using the cap to permanently shut in the well and is likely to return to collecting as much as 80,000 barrels a day from the well until it can complete the two relief wells in progress, which remain on track for a mid-August permanent well closure.
We view BP's success at containing the well as a huge positive that should allow the firm to focus its energies on cleanup. We currently assume spill cleanup costs to average $30 million-$50 million per day until year-end, or another $5 billion-$8 billion. An earlier-than-expected halt to oil spilling into the Gulf of Mexico could reduce potential civil penalties that will be determined through the court system over the next few years. Our earlier estimate of potential civil penalties was $4 billion-$46 billion, based on penalties of $1,100-$4,300 per barrel of oil spilled and a government-estimated oil spill rate of 35,000-60,000 barrels per day for 120-180 days. Cutting this to 86 days would reduce potential civil penalties to $3 billion-$22 billion.
However, we caution that our estimate of potential regulatory or legal fines remains highly uncertain, as various investigations into the cause of the spill, assignment of blame and legal responsibilities, and the outcome of court decisions will take years to resolve. We also remain concerned about the potential impact of the oil spill on BP's operations longer term, particularly in the US offshore, where regulatory scrutiny will be intense for years to come.
Catharina Milostan is an equity analyst with Morningstar.
