A Calculated Risk?

Here are a few simple questions:

  1. How much money did BP stand to make if they had kept the Deep Horizon’s well under control?
  2. How much money would have been made from the oil that’s been lost to the Gulf of Mexico?
  3. How much money do they expect the disaster to cost them, before they are able to hook up to the gusher and recover the rest of the oil?

I have little doubt that if you subtract the answers to #2 and #3, from the answer to #1, you’ll still get a very large positive number.

If BP can manage to figure out how to pump most or all of the gushing oil into ships on the surface, they stand to make a lot of money. But they have to make sure they still have access to the flow.

Some Deductive Reasoning

Let’s say there were some more aggressive way to stop, plug, cap, destroy, or otherwise end the slow-motion environmental disaster we’re all witnessing. But what if this aggressive solution would end access to the oil that they expected to reap in #1 above.

That very large positive number I mentioned — that’s the amount of money that BP could stand to lose by doing the Right Thing.

So how much money is typically made from a modern deep-sea oil well in the Gulf of Mexico these days? A billion dollars? Five billion? Fifty?

Apparently Exxon paid about $500M in clean-up costs, and another $510M in settlements. Add to that a couple hundred million in legal fees and we’re in at well under two billion dollars.

Does BP expect to spend $2B or even $5B on clean-up, legal fees, fines and settlements? Say it were $10B. If the well makes them $50B, then they’re still net-positive by $40,000,000,000.

I have no idea if these numbers are anywhere near realistic. Where are the experts who should be talking about this math? I haven’t heard from them.

The Back of the Envelope

Ok, so I don’t have real data, but let’s do a back-of-the-envelope calculation.

#2: Estimates of the spill vary by more than order of magnitude, but say for the sake of argument that it’s leaking 50,000 barrels of oil per day. At $100/barrell, that’s $5M/day, or $225M over the 45 days since the disaster started. That’s $225M so far. Say it lasts for a year — that’s about 1.8 billion dollars in lost oil. Call it a clean $2B.

#3: Say the spill ends up costing BP roughly 10 times what the Valdez spill cost Exxon. I don’t have exact numbers, but I think it was about $1.2B for Exxon. Round up to $15B.

#1: An oil well’s life might be more than 20 years. Unfortunately it’s hard to predict how how long a well will be productive, or what its yield will be. Let’s be conservative on the time-line and call it 10 years at 150,000 barrels per day. (Atlantis, a very similar rig to Deep Horizon, produces up to 200K barrels a day.) That’s about 54.75M barrels/year, or 547M over 10 years. At $100/barrel, we’re looking at $54B gross over the lifetime of the well. Subtracting say $400K/day for operating costs (about $1.5B over 10 years): About $52.5B.

So here’s the back of the envelope:
Lost oil, plus clean-up costs: $2B + $15B = $17B
Projected net, minus disaster expense: $52.5B – $17B = $35.5B

So here’s that very large positive number I was talking about:


Thirty-five-and-a-half Billion dollars. That’s the amount of money BP might stand to lose if the well were sealed in a permanent way, that prevented them from getting at the oil.

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