The Oil and the Glory

BP is not out of the woods yet

BP is not out of the woods yet

The market is taking comfort in a 48-page partial report issued today by a presidential investigative commission into last summer’s BP oil spill in the Gulf of Mexico. But should it be? The answer is no — BP isn’t out of the woods yet.

Where investors and analysts are taking heart is that the report does not single out BP, nor say that BP or any of its partners deliberately cut corners or took excessive risks in order to save money while drilling the Macondo well prior to the April 20 accident. Best of all, the dreaded, single word — negligence — is absent from the findings, as Oswald Clint of Bernstein Research wrote in a note to clients this morning. In a nutshell, as we’ve discussed previously, if BP were convicted of gross negligence in a U.S. court, it could face a quadrupling of its estimated $20 billion bill stemming from the spill. At least in part because there is no mention of negligence, BP share price is up more than 2 percent in early trading today.

BP itself sounds relieved: "Today’s release largely adopts the preliminary findings of the commission’s chief counsel, and like several other inquiries, including BP’s internal investigation, concludes that the accident was the result of multiple causes, involving multiple companies," BP said in a statement.

But this is a false calm, as I discuss on CTV’s morning show in Canada. As it turns out, the commission was specifically barred from delving into BP’s legal culpability, Dave Cohen, a commission spokesman, told me in an email. "We are under explicit order by the executive order establishing us not to do anything that might interfere with the [Department of Justice] investigation. They will decide legal matters," Cohen said.

The report walks right up to that line without actually using the words. It accuses BP of a "failure of management," and says the accident was "avoidable" and "preventable." It accuses BP and its partners of taking numerous risks that, when added together, were "both unreasonably large and avoidable," and resulted in the blowout. The commission does not accuse the companies directly of taking such risks in order to economize, but does connect the two — money was saved because of the risks. From the report:

Whether purposeful or not, many of the decisions that BP, Halliburton, and Transocean made that increased the risk of the Macondo blowout clearly saved those companies significant time (and money)

The report — the full version of which is due to be released next Tuesday — contains much grist should the U.S. Department of Justice decide to level the gross negligence charge:

The well blew out because a number of separate risk factors, oversights, and outright mistakes combined to overwhelm the safeguards meant to prevent just such an event from happening. But most of the mistakes and oversights at Macondo can be traced back to a single overarching failure-a failure of management. Better management by BP, Halliburton, and Transocean would almost certainly have prevented the blowout by improving the ability of individuals involved to identify the risks they faced, and to properly evaluate, communicate, and address them.

Update: The market appears to have grasped that its optimism was premature — BP’s share price closed down today by a penny.