BP says oil spill clean-up costs hit $8 bln, "bottom kill" by mid-Sept

By Surojit Chatterjee: Subscribe to Surojit's RSS feed

September 3, 2010 2:53 PM EDT

Embattled British energy giant BP Plc. (LON.BP) announced, Friday, costs linked to the massive oil spill in the Gulf of Mexico stood at $8 billion even as hopes soared on news that the damaged Macondo well could be permanently sealed as early as mid-September.

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BP said, Friday, the clean-up costs of Deepwater Horizon oil spill stood at $8 billion, rising from the $6.1 billion figure it reported on August 9.

"The cost of the response to date amounts to approximately eight billion dollars, including the cost of the spill response, containment, relief well drilling, static kill and cementing, grants to the Gulf states, claims paid and federal costs," BP said in a statement.

The company said there was a sharp jump in claim payments last month. BP has made 127,000 claims payments, totaling about $399 million so far.

However, the company triggered hopes that the damaged Macondo well could be permanently plugged as early as mid-September when the company begins execution of "bottom kill," a process of permanently plugging the base of the leaking well with "drilling mud" and cement. To this end, drilling of two relief wells, intended to intercept the damaged well, is nearing completion.

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BP said, Friday, favorable weather conditions will allow the relief wells to reach the Macondo well as early as mid-September. The announcement helped BP's shares jump on the bourse. At 3.31PM (BST), shares of the company were trading up 1.54 percent at 398.65 pence.

Last month, the company successfully managed to plug the damaged well by executing "static kill," a process by which "drilling mud" was slowly pumped from a ship down lines running to the top of the damaged well, forcing the oil and gas back down into the reservoir.

Earlier, a cap fitted with valves and pressure-monitoring equipment was fitted on top of the well bore to temporarily prevent oil and gas from spewing out.

BP said it has removed the cap from the damaged oil well and is preparing to replace failed safety equipment – known as a blowout preventer – from the top of the well with a working device. It is a prelude to "bottom kill."

About 28,400 personnel, more than 4,050 vessels and dozens of aircraft are standing by to assist BP in its response efforts.

BP has been roiled ever since Deepwater Horizon, an oil rig majority-owned by BP exploded on April 20, killing 11 people, and sank two days later. To date, the damaged well has spewed nearly 5 million barrels of crude, eclipsing the iconic Exxon Valdez oil spill in Alaska in 1989 as the largest offshore oil spill in the US history.

The spill affected the ecosystem and industries - especially fishing and tourism - in the states closest to the spill site and forced BP to take a charge of $32.2 billion after pushing it into a record $16.9 billion loss in the second quarter – the biggest quarterly loss in British corporate history.

BP also has set aside a $20 billion escrow fund to pay for some of the obligations that will arise from the spill.

The company was also forced to announce it would be suspending dividend payments to its shareholders and had also sold some of its oil assets to American oil producer Apache Corp. for $7 billion.

Market analysts have put BP's total oil spill costs at anything between $30 billion and $100 billion, given the litigation and fines it's facing and also said the company could be a vulnerable target of a hostile takeover from rivals such as US energy giant Exxon Mobil or French oil major Total S.A.

The oil spill has also eroded the company's market value by nearly half and the company's brand image took a hit with its US distributors insisted on rebranding their operations as Amoco, which BP bought in 1998.

The oil spill also cost BP CEO Tony Hayward his job.

This article is copyrighted by International Business Times, the business news leader