Monday, March 05, 2012

Chart of the Week: Full Speed Ahead in Gulf

Nothing like rising gas prices during a presidential election cycle to focus the minds of politicians. Last Friday British Petroleum announced it had settled the consolidated medical claims of thousands of Gulf fisherman for $7.8 billion. Those claims are just part of the massive consolidated damage suit in federal district court, but what is clear as the suit progresses is the company using its enormous financial leverage to cloak the nature of its legal liability for the disaster.  The US Justice Department is supposedly conducting an investigation into the company's criminal culpability.   The settlement will limit the source of potential damning evidence that could support a criminal prosecution for its mismanagement of operations aboard the Deepwater Horizon platform. Judge Carl Barbier has already ruled in the civil case that witnesses can not testify to previous accidents. Last week the company filed a motion to strike any written references to previous accidents from the court record. The case, if it ever goes to trial, will not be heard before a jury, but the case is so big that new evidence of BP degree of culpability may emerge despite the company's efforts at damage control.

As the lawyers wrangle, drilling in the Gulf proceeds with new vigor. Forty rigs are operating in the Gulf of Mexico compared to 25 a year ago. Five of those are operated by BP. There are plans to expand operations into Mexican and Cuban waters. The United States signed a new agreement with Mexico recently, opening up 1.5 million acres of offshore territory on their maritime border to development. The Interior Department estimates the area contains up to 172 million barrels of oil and 300 billion cubic feet of gas. These are modest reserves when compared on the global scale. The countries reached an agreement on sharing offshore oil and gas in 1980, but the US declined to ratify the treaty. Now with gas prices exceeding $4.00/gal in the US, there is renewed political pressure to speed up domestic production despite the risk of more environmental damage. Pemex, Mexico's national oil company, is preparing to drill well in waters over 6,000 feet deep, but it has little deep water experience. Mexico also does not have the resources to combat a major deep water spill like the Deepwater Horizon disaster. Yet the political discourse in the US is not over the question of how domestic production should go forward, but how fast it can be given the green light.