SOURCE: Rothman Research

Rothman Research

June 16, 2010 08:18 ET

Gulf of Mexico Oil Spill -- What Will Be the Impact on the Oil Industry?

JOHANNESBURG, SOUTH AFRICA--(Marketwire - June 16, 2010) - www.rothmanresearch.com -- It happened on 20 April 2010 about 50 miles off the coast of Louisiana, the largest offshore spill in U.S. history. Close to two months after this disaster, the U.S. government estimates that between 12,000 barrels to 19,000 barrels are still pouring out the deepwater well on a daily basis. All attempts from BP plc to cap the fissured well have failed so far. However, the damage may be even more far reaching as there are growing concerns within the industry that the spill could trigger new sets of tighter regulations that could ultimately raise the cost of drilling in deep water regions. The extent of the damage on the environment is also pushing the U.S. government to look into other alternatives like natural gas and nuclear energy. 

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Lawmakers in Washington are still debating the steps to take and waiting for all facts to point to a culprit. Whilst BP remains the prime target for the U.S. government's fury and mainstream media's attention, investors have also reacted by slamming the stock down by nearly 45% since April 20. The fall in value of BP's shares opens the door for a number of speculations, many geared towards a possible takeover. However, according to Reuters one potential contender Total SA (NYSE: TOT) stated that bidding for BP in a time of weakness is 'unethical.' Even though a takeover is quite unlikely, the odds that it could come to this lies on the time BP takes to fix the leak. The more time means the more financial liabilities incurred, and there is so much a company can take as liability even if the company is as big as BP.

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The 'go-baby-drill' campaign that was launched at the end of March by the Obama administration seemed to have lost some of its panache. Instead, the oil spill has reopened the natural gas debate chapter as the best alternate energy solution. One company that is already making great strides in the natural gas sphere is EnCana Corp. (NYSE: ECA), so any positive development in favor of natural gas would be a boon for the company's growth.

"There are a number of uncertainties to where the political aftermath concerning the BP oil spill will lead. But what a majority of the people throughout the market believes is that it will not go as far as the closure of all deep water drillings. This would be an economic disaster that the United States will never risk. There is a strong feeling that new regulations will be imposed and these could boost operational costs for rig operators," commented Jack Benassi of www.rothmanresearch.com. "Offshore drilling has become a vital component in the bid for the United States to become more autonomous concerning its energy supply."

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