BP (NYSE:BP) saw its stock rise by 5% on Wednesday as the Bureau of Ocean Energy Management, Regulation and Maintenance released its report on the causes of the Macondo blowout that resulted in the death of 11 personnel on board of the Deepwater Horizon and the discharge of approximately 5 million barrels of crude oil into the Gulf of Mexico.  While holding BP responsible for some of the decisions that led to the blowout, the report also shed some light on the lack of regulation and the role of BP’s contractors Transocean (NYSE:RIG) and Halliburton (NYSE:HAL) in the disaster. The three firms are locked in a legal battle over their share of the blame for the disaster.
We have a $55 price estimate for BP which implies a 40% premium over its current market price.
A collective responsibility
Providing a detailed analysis of the events that led to the disaster, the report identified the failure of a cement barrier in the production casing as the root cause of the incident while remaining ambiguous on the cause of failure of the cement.  The investigators also blamed Transocean for accumulating the gas on-board and not providing its personnel with enough training to deal with the situation.
Halliburton, which provided the cementing services for the well, has also been named in the report as being partially responsible for not cementing the well in a fashion that would have controlled the formation pressures and fluids. The oilfield services provider responded to the report, claiming that BP alone was responsible for the operational decisions that led to the disaster.  In a separate case, Halliburton has sued BP for withholding information related to the well – an action that it says resulted in the botched cementing job.
The future of drilling in the Gulf
The report, which also blamed insufficient regulation as a reason for the disaster, has recommended a standardization of procedures related to the events that led to the spill such as testing cement barriers and interpreting the results of those tests. It also recommends other steps to enhance the safety of offshore drilling operations, such as the strengthening of blowout preventers and an increase in the number of unannounced inspections of rigs by regulators.  The report also suggests that operators should comprehensively report well control issues to the government for effective oversight.
The Gulf of Mexico has become an important deepwater exploration and production region and it now contributes to 27% of the total crude oil production in the U.S. BP owns the largest acreages in the Gulf and plans to resume drilling in the region to prop up its declining crude production.Notes: