BP's existence under threat as Gulf of Mexico oil spill continues

By Darrell Delamaide, Oilprice.com

BP shares have plunged since the Deepwater Horizon explosion in the Gulf of Mexico, wiping (at the time of publication) approximately $75bn off the market capitalization of the company since late April. Premiums on credit default swaps to insure the company's debt soared 75% to $178,000 for $10m as analysts began to question whether the company can survive the financial and reputational costs of the catastrophe.

A former Clinton cabinet member, ex-Labour Secretary Robert Reich, now an economist at Berkeley, went so far as to urge the nationalization of BP by the US government so that authorities could take direct control of the efforts to stop the spill and clean up the damage to the environment.

The existential threat to one of the largest companies in the world hits a company whose origins date back to the discovery of oil in the Middle East. BP began life in 1908 as the Anglo-Persian Oil Company to exploit oil fields discovered in what later became Iran.

When Iran nationalised its oil industry following World War II, the British government supported a CIA coup in that country that brought the shah to power and restored partial ownership of Iran's oil revenue to the British company, now called British Petroleum.

After a series of mergers in the 1980s and 1990s, including the acquisition of Amoco, the company adopted its present name, BP plc. Its advertising slogan in recent years has been "Beyond Petroleum," playing on that abbreviation.

But now, say analysts, the company will have difficulty in the face of civil and potentially criminal liability, shaking the damage to its reputation from the Deepwater Horizon accident and ensuing oil spill.

The failure of the company's most promising effort to stem the flow of oil into the Gulf - the so-called "top-kill" bombardment with mud - made it likelier that only the drilling of a relief well would fully stop the flow. But that solution could take until August, with the risk that the shares and balance sheet of the company could continue to be hammered in the interval.

A weakened BP could be the target for a takeover or even bankruptcy, analysts have suggested, with some pointing to stories of previous merger talks with Shell.

Original article: http://oilprice.com/Energy/Energy-General/BPs-Continued-Existence-Seen-Coming-Under-Threat-as-Gulf-Oil-Spill-Continues.html