Other players in April 20 rig blast deal with consequences, get a boost from BP plugging well
DENVER – With BP at a turning point in the Gulf oil spill, other companies with a role in the crisis are seeing their fortunes improve, even as they wait to see how the legal and financial costs are sorted out.
BP is close to permanently sealing the well with a cement plug. On July 15, it used a 70-ton cap to finally stop the flow of oil after 85 days.
Shares of Anadarko, BP's partner in the blown-out well, and Transocean, which leased BP the ill-fated rig Deepwater Horizon, rose sharply this week.
Both indicated they're coping with the consequences of the spill. And they remain firm that BP should bear the brunt of the total costs.
With drilling banned for now in the Gulf, Anadarko is producing more oil and natural gas onshore. Transocean, which has 13 rigs contracted out in the Gulf, is working to retain customers while eyeing more business in international waters. And Halliburton, the services company responsible for encasing the BP well in cement, is bringing in lots of revenue from services outside the Gulf.
Investors in these companies saw billions in market value disappear. Many have bailed; some sued. Those who held shares or bought some recently have witnessed rebounds of as much as 60 percent.
Anadarko's shares fell $1.24 to $55.41 Friday afternoon yet remained above Monday's closing price of $50.52. Transocean's shares, lost 82 cents to $57.11, higher than Monday's closing of $47 a share. Halliburton's shares dipped 33 cents to $30.92, above Monday's close of $30.44. The shares still remain below their levels in late April when the oil started spilling.
Analysts say an investment in these companies is a bit of a gamble.
That's because of all the lingering questions, from who's responsible for the disaster to how much government fines and legal costs will run.
Multiple investigations are ongoing. Although BP, as well operator, has faced the most scrutiny, Transocean and Halliburton could also be found liable in the blast.
Transocean claims its contract with BP indemnifies it from paying for the spill. But BP says that depends on where investigators place the blame for the blast.
Congressional investigators questioned some cementing processes Halliburton used on the well. But the company says it followed BP's directions — and standard industry practices.
As BP's partner, Anadarko could be responsible for up to 25 percent of damages and cleanup costs. It argues that BP should have prevented the disaster and is refusing to pay a $1.2 billion bill from BP for damage claims and cleanup costs. It will owe that, and more, if BP escapes claims of gross negligence.
A resolution of those issues lies far ahead. For now, investors are heartened that the well has finally been plugged.
From April 20 through June 25, BP PLC shares lost 55 percent, or about $104.73 billion in total market value. Since then they're recouped $45.64 billion. On Thursday, BP shares closed above $40 for the first time since May 28.
Anadarko Petroleum Co., with a much smaller market capitalization, has lost $9.17 billion in value. The deficit was once $19.4 billion. Transocean Ltd. shares have gained almost 24 percent just this week; the drop in market value stands at $11.14 billion.
Transocean isn't shielded from the wrongful death claims by the families of its nine workers who died in the explosion. Two workers from MI-SWACO, joint venture between Schlumberger and Smith International, also died.
Analysts believe that Cameron International Corp., which made a key safety device on the rig that failed to deploy, and Halliburton Co. have the least risk of liability. That may explain why their shares rebounded before the others. They're down just 15 percent and 7 percent, respectively.
Argus Research analyst Phil Weiss said he believes Halliburton's risk is low — unless investigations show significant errors in its work.
Most of the companies involved turned in solid second-quarter performances while enduring costs tied to the Gulf mess and the U.S. government's moratorium on deepwater drilling.
BP, which has promised to clean up the mess, set aside $32.2 billion and is selling assets to pay for the spill.
Anadarko narrowed its second-quarter loss and increased production of gas by focusing on international projects and U.S. onshore properties.
Weiss believes the BP-Anadarko dispute will end up in arbitration, with both parties assuming part of the costs. Anadarko also could owe up to a quarter of all environmental costs under the Oil Pollution Act, which it estimates at $6 billion to $10 billion.
Transocean, the world's biggest offshore driller with 140 rigs, said it lost revenue from the sunken rig in the second quarter. And some customers are looking to void contracts because of the Gulf drilling ban.
But the company was able to extend a contract with Chevron for a rig that had been bringing in $517,000 per day. Transocean didn't say if the rate had changed.
Transocean believes it will be held liable for about $80 million under the Oil Pollution Laws for fluids from the sunken rig.
In a research note published Friday, FBR Capital Markets analyst Robert MacKenzie says based on the drop in its share value, the market estimates Transocean's liabilities at $6 billion, a number he believes is too high.
Halliburton says growing revenue from the services it provides to drillers looking for natural gas onshore in the U.S. will make up for revenue lost offshore. Cameron says its North American business remains strong.
Daniel Pickering, head of research at Tudor, Pickering, Holt & Co., says diversification is the key for all these companies.
"The impacts of the Gulf of Mexico are important but not anywhere close to a majority of the business for any of these companies," he said.
(This version CORRECTS the 17th paragraph to say that two employees of MI-SWACO, not BP, died in the blast on April 20.)