Will BP go bankrupt over the Gulf of Mexico oil spill?

2 July 2010 2 July 2010

BonTrade

The Gulf of Mexico oil spill has many asking if BP will go bankrupt if it cannot contain the doomed Gulf Deepwater Horizon oil spill within a reasonable amount of time.

Yesterday, BP’s runaway oil spill officially became the world’s biggest offshore spill disaster and according to the most pessimistic of US government estimates, the high end of that is estimated at 199 million gallons so far, while the low estimate is 107.3 million gallons of oil spill into the Gulf of Mexico waters.

Subtract the amount of oil that BP and federal officials have reported siphoned off, burned and skimmed and the total amount of oil in the Gulf as of yesterday was estimated at 140.6 million gallons.

That tops the estimated 140 million gallons spilled in 1980 from Mexico’s Ixtoc 1 offshore well in the Gulf of Campeche.

Will BP go Bankrupt if the Oil Spill cannot be Plugged?

That’s the million dollar question as plans are now being made to charge BP per galloon of oil spilt into the Gulf. According to the Market Oracle in a recent post, they are sure that BP will go bankrupt “There is no doubt that BP will not emerge from this oil spill disaster intact. Make no mistake – this is the fatal black swan event in BP’s life that is going to take investors by the hundreds down with the ship”.

“It’s a mind-boggling number any way you cut it,” said Ed Overton, a Louisiana State University environmental studies professor.

Some US government estimates put the amount of oil spilled at 160 million gallons so far. That calculation was arrived at by using the rate of 2.5 million gallons a day all the way back to the oil rig explosion. The AP, relying on scientists who advised the government on flow rate, bases its estimates on a lower rate of 2.1 million gallons a day up until June 3rd 2010, when a cut to the well pipe increased flow.

Also, the US House have now passed the first major bill related to the Gulf of Mexico oil rig explosion, voting to allow families of those killed and injured workers to be compensated far more generously than current law allows.

Currently BP has the available cash needed to pay for this oil spill disaster but for how long can they fund the operation if the oil spill cannot be contained? Look to next month as BP have estimated that the oil spill will be contained at this point, if not, then it’s increasing likely that bankruptcy for BP maybe on the cards.