BP Oil Spills Effects Spread to Other Companies__» (Part 1)

May 18, 2010

It has been nearly a month since the Transocean Ltd. Deepwater Horizon oil rig exploded on April 20, killing 11 workers and unleashing a torrent of crude oil into the Gulf of Mexico. BP PLC (BP) — which has a 65% interest in the exploration well called Mississippi Canyon 252 — continues to lose millions of dollars each day. Its credibility has also taken a hit because of the company’s inability to stop the leak.

Since the spill occurred, BP has filed nearly two dozen separate 6-Ks to provide regular updates on the company’s efforts to contain the oil spill and mitigate its damages. (We don—t generally write about 6-Ks, so it might help to know that foreign companies use them to report material disclosures; they’re similar to the 8-Ks that U. S. companies file.)

In a May 10 filing, BP stated:

“Provided BP can stem the well and clean the spill within a reasonable time, the company has adequate liquidity and financial headroom to meet immediate costs, in our view. However, it is still too early to estimate with any degree of confidence the full future impact on BP from the spill, as the causes of the incident have not yet been fully investigated. Litigation involving the well’s owners and various contractors — may take several years to play out. The effectiveness of BP’s actions to mitigate the environmental impact of the spill will be important in the final assessment of the incident and any long-term reputational damage could be significant.”

But what about other companies that depend on the Gulf of Mexico for their success?

To answer that question, we researched numerous SEC filings submitted by companies other than BP. Although many companies say it’s too early to predict their damages, it’s clear that companies are bracing for a variety of losses.

In this first of two posts related to the spill, we’ll look at some of the companies within the oil sector. Later today, our second post will include filing disclosures from companies in other sectors.

A number of companies warned that the spill could prompt new regulations, with unpredictable results. Houston-based Noble Energy, Inc. (NBL) filed a quarterly report on April 29 noting simply that “we cannot predict how government agencies will respond to the incident or whether changes in laws and regulations concerning operations in the Gulf of Mexico, including the ability to obtain drilling permits, will result.”

Anadarko Petroleum Corp. (APC) filed a 10-Q on May 4 that also expressed concern about the impact of new regulations, including calls from government officials and federal agencies for increased inspections of deepwater drilling operations in the Gulf. That, and other regulatory changes, the company said:

“…may result in substantial cost increases or delays in our offshore exploration and development activities, which could materially impact our business, financial condition and results of operations.”

In the quarterly report that Marine Petroleum Trust (MARPS) filed May 17, the company – which hasn’t been directly affected by the spill yet – stated that it may be adversely impacted as the oil slick spreads, as well as from new, more stringent regulations.

Likewise, in the 10-Q that ATP Oil & Gas Corp. (ATPG) filed on May 10, the company expressed concern that the government’s moratorium on offshore drilling permits, which is currently set to expire May 28, may be extended. Stating the obvious, ATP Oil & Gas added, “A prolonged interruption in our drilling or production operations would adversely affect our financial position, results of operations and cash flows.”

Hercules Offshore, Inc. (HERO), which provides offshore contract drilling, liftboat and inland barge services, added in the 10-Q it filed April 30 that the spill could damage its vessels or delay its operations. That potential damage and/or delay, along with potential regulatory changes, “…could reduce our revenues and increase our operating costs, resulting in reduced cash flows and profitability and could impact compliance with our Credit Agreement.” In the more recent 8-K that Hercules filed May 13, the company said it has three jackup drilling rig operations that fall within limited exceptions to the moratorium that should be able to complete their work during the moratorium period. However, it doesn’t expect new contracts until after the moratorium is lifted. It then stated: “If the moratorium is extended beyond May 28, 2010, it could also affect our other jackup drilling rigs in the U.S. Gulf of Mexico regardless of contract status. We believe that some of our contracts may not be fully permitted, or may not be fully permitted for the entire duration of the contract.”

Newpark Resources, Inc. (NR), a diversified oil and gas supplier, filed an S-3 on May 12 to state that its Gulf Coast customers “may possibly be forced to curtail or cease operations in the areas impacted by the spill, resulting in less demand for our drilling fluids and waste disposal services.” The company said it might also have to suspend operations and could have trouble delivering its products by barge. “Either of these events could potentially result in a reduction in revenues or an increase in our costs,” the filing stated.

And finally, Blue Dolphin Energy Co. (BDCO) filed a 10-Q on May 17; in addition to the increased costs and potential delays that may come with increased federal regulations, the company noted that increased regulations “may lead to increased difficulties obtaining insurance coverage on economically manageable terms.”

This afternoon, we’ll examine how other companies outside the oil industry are being affected by the BP oil spill. Please check back with us for that report.

Image source: uscgd8 via Flickr

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