BP oil spill to push up costs of future projects - sources

07 June 2010 15:24  [Source: ICIS news]

KUALA LUMPUR (ICIS news)--BP's massive oil spill in the Gulf of Mexico could make energy companies face higher costs of doing exploration and production in the US, as regulations and scrutiny of projects are expected to tighten in the aftermath of the disaster, according to sources at an industry conference on Monday.

"If you look at the kind of environmental tragedy that's unfolding, what we're really going to see is a very strict regulatory response," said David Greely, chief commodities strategist and head of energy research at Goldman Sachs, adding that this would translate into a "higher regulatory burden" for oil players and may cause project delays.

Greely was speaking at the 15th Asia Oil & Gas Oil Conference in Kuala Lumpur, Malaysia.

Insurance costs would likely increase, raising the overall cost of production for oil, he added.

"There will be unintended consequences," said Martin Houston, executive director, executive vice president and managing director for the Americas and global LNG (liquefied natural gas) at UK-based BG Group.

The undersea well off the coast of Louisiana has been leaking an estimated 12,000-25,000 bbl/day of oil for nearly seven weeks following an explosion on 20 April at the BP-operated Deepwater Horizon oil rig, which killed 11 people.

The oil spill would lead to an emphasis on companies with "bigger balance sheets" and "better safety records" to take oil from such projects, given that BP's total bill from the clean-up and containment efforts would likely hit $5bn-7bn or even higher, said Noriko Honda Chen, senior vice president and research director at Capital World Investors.

BP has failed in its repeated attempts to contain and plug the oil leak, which lies one mile under the ocean's surface.

The company's latest effort involved placing an inverted funnel-shaped containment cap over the well to siphon off part of the leaking oil.

The UK oil and gas major has racked up about $1bn in bills as of 1 June from the clean-up operations, including the cost of two relief wells currently being drilled to permanently fix the problem. But the drilling is only expected to be completed in August.

The US government suspended offshore drilling immediately after the oil spill began, which is now the worst in the US history.

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By: Pearl Bantillo
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