A Good Week for BP, But It Still Faces Long Road to Recovery

(Dow Jones Newswires), Jan. 7, 2011

BP has had a good start to 2011. Though it could hardly have been worse than the disaster that was 2010.

It began with New Year's Eve comments from Kenneth Feinberg, the lawyer administering BP's $20 billion compensation Gulf of Mexico oil spill fund, that just $10 billion may be enough to compensate economic victims of the spill.

On Thursday, BP was predictably battered for multiple safety failings by early findings from the presidential commission investigating the causes of the oil spill, but crucially it was not singled out for blame alone. The commission also pointed to serious mistakes by BP contractors Halliburton and Transocean and wider systemic failings in the deep water oil industry.

Investors took this as a sign that BP was less likely to be found grossly negligent--a ruling that could add tens of billions to BP's liabilities--and sent the company's shares higher.

On Friday, there was more evidence that environmental damage to the Gulf of Mexico is not a bad as feared. A study published in the journal Science found that naturally occurring microbes in the Gulf devoured significant amounts of toxic chemicals in natural gas and oil spewing from the sea floor, which researchers had thought would persist in the region's water chemistry for years.

BP also took steps to put behind it the PR disaster that the spill turned into with the appointment of a new head of communications.

BP shares have risen 5.4% this week, adding $7.3 billion to its market capitalization and taking it to its highest level for six months.

Despite this good run, BP is far from being out of trouble. The most significant investigation into the Deepwater Horizon disaster, by the U.S. Department of Justice, is ongoing.

The DoJ has already launched a civil suit against BP under the Clean Water Act and Oil Pollution Act. Only Attorney General Eric Holder knows whether criminal charges--with potentially unlimited liabilities--could follow. Crucially, the DoJ has sole custody of the Deepwater Horizon's blowout preventer, a piece of equipment whose failure was instrumental in causing the explosion and oil spill.

The even more fundamental question of whether BP can continue to operate successfully in the Gulf of Mexico remains unanswered. The Obama administration this week allowed 13 companies to resume drilling in the Gulf, but BP was not among them. The Gulf of Mexico deep water is the cornerstone of the company's future growth, but it may be some time before it can resume operations there and the terms may be particularly onerous.

The road to recovery is still a long one.

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