BP Rolls Out Spill Containment Kits To Mitigate Deepwater Exposure

+12.66%
Upside
37.46
Market
42.20
Trefis
BP: BP logo
BP
BP

Concept diagram of underwater oil containment ...

(Photo credit: Wikipedia)

Oil major BP (NYSE:BP) announced that it had now developed a 500 ton spill containment system that could be installed at any deepwater spill in its facilities around the world in a matter of 10 days. [1] The system is designed to operate in field over 10,000 feet deep and can direct escaping oil and gas from deepwater wells into pipelines that lead to the surface. The equipment signifies the growing importance of deepwater resources for companies like BP and Chevron (NYSE:CVX). BP is expected to shell out about $30-40 billion for its role in the Gulf of Mexico incident, but is committed to increase its footprint in the region, betting on its ability to safely exploit the deepwater reserves.

We have a $59.51 price estimate for BP, which is at a 50% premium to its current market price.

Relevant Articles
  1. BP Stock Up 7% This Year, What’s Next?
  2. Flat Since The Beginning of 2023, Where is BP Stock Headed?
  3. What’s Happening With BP Stock?
  4. BP Stock Up 11% Over Last Month. What’s Next?
  5. BP Stock Up 8% Over Last Month. Will It Continue?
  6. Should A Benchmark Price Correction Weigh Heavily On BP Stock?

Click here for our full analysis of BP.

Deepwater expansion

BP is banking on offshore reserves in the U.S. Gulf of Mexico, offshore Africa and the North Sea to increase its production levels over the next few years. The company has been forced to sell some of its assets to cover the spill expenses related to the Gulf of Mexico incident, resulting in production declines over the past several quarters. Since a number of its recent discoveries are in deepwater locations, it has become crucial for BP to invest in risk mitigation techniques. Already, the company is still recuperating from the impact of the Macondo spill and uncertainty still looms over the costs that it may incur in the form of government penalties and fines.

Over the past few months, deepwater projects have come under increasing scrutiny from governments across the world after Chevron reported an offshore seepage near the Frade fields in Brazil and a couple of other minor offshore accidents.

However, with large oil reserves becoming increasingly rare and the price of oil hovering around $100 / barrel, companies are being forced to develop deepwater reserves and are investing in technology and equipment that can mitigate the risk of underwater leaks and minimize the impact in case of a leakage. BP’s new system can be deployed at any of its present locations in a maximum of 10 days and cost the company $50 million.((ref:1)) The need for better safety standards and equipment could add to the cost of deepwater oil exploration and production, potentially impacting the operating margins of BP and other oil companies.

Understand how a company’s products impact its stock price on Trefis.

Notes:
  1. Here Be Oil Plugs: Spill-Containment Kits Go Global, WSJ []