Preventing the Next BP Disaster: A Look at 5 Energy Titans
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
BP’s (NYSE: BP) Deepwater Horizon spill taught investors an important lesson: be prepared to handle sudden, immediate crises.
The Deepwater Horizon disaster erased billions of dollars of value – BP was charged massive fines, and the government put a 6-month moratorium on drilling in the Gulf of Mexico, hampering the profits of other drillers.
Looking back on the disaster, BP realized that a number of small errors went wrong. Individually, each was not a major problem. Compounded together, however, they culminated in the worst offshore oil spill America has ever seen.
Today, companies can protect themselves by preventing crises in the first place, and also by training workers to respond immediately and effectively to any disaster that presents itself. Aside from BP, which has developed its own 100-ton, 32-foot cap and tooling package (a very worthwhile video), four other firms have banded together to for the Marine Well Containment Company (MWCC).
The MWCC is a non-profit organization, formed by ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), ConocoPhillips (NYSE: COP), and Shell (NYSE: RDS-A). The group, which contains six other members, is “committed to improving capabilities for containing an underwater well control incident in the U.S. Gulf of Mexico,” Exxon’s website explains. The group has built a marine well containment system that will “shut in oil flow” to end a leak. Also, the system is able to redirect the oil to surface vessels via flexible pipes.
In addition, the four companies have collaborated to include “subsea dispersant injection equipment, manifolds and, through mutual aid among members, capture vessels to provide surface processing and storage,” Exxon reports.
The MWCC hopes to finish its expanded line sometime in 2012. The expanded line is aimed at stopping a leak cold – it is made to operate in up to 10,000 feet of water, and it is capable of processing 100,000 barrels of liquid and 200 million cubic feet of gas per day.
The four major energy firms formed the MWCC in 2010, hoping to collaborate on a solution to contain a leak, in case “an operator lost complete control and subsequent containment of a well.” In short, the four formed the group to hedge against another ghastly, expensive oil spill.
Since its formation, the group has recorded the number of drilling permits that it has been granted – ConocoPhillips just earned number 63 – and it has made enormous progress. The group has strategically planned how to provide subsea equipment, risers, dispersing and hydraulic manifolds, and a capping stack to an energy company who experiences a major leak. And most recently, MWCC and Shell conducted a capping stack demo in the Gulf of Mexico.
The essential question is this: what is the cost to shareholders of another Deepwater Horizon incident? It is almost incalculable. Most obvious is the billions in fines. However, lost time and focus, coupled with the opportunity cost and lost investment of dollars paid out in fines, lead to a far larger number.
The major energy companies have learned an important lesson: it is far better to prevent than to respond. And respectably, they have taken significant action to curb enormous loss in the future.
In today’s media-frenzied world, companies have no choice but to clearly communicate their preventive measures – then live them out to perfection. Otherwise, a costly mistake like the Deepwater Horizon debacle may cost shareholders billions. But with a little preventive planning, these companies have banned together to avoid massive risks.
ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services recommend Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.