The company’s earnings, though, take a back seat to its sale of $9.9 billion in assets, mostly in the Gulf of Mexico. Unlike BP plc (NYSE:BP), ExxonMobil Corp. (NYSE:XOM), and Apache Corp. (NYSE:APA), all of whom have significant Gulf assets, Devon doesn’t have to fret about regulatory changes that are sure to follow the disaster at BP’s Macondo well.
Devon’s realized price per barrel of oil equivalent improved from $25.53 in the year-ago quarter to $38.78. Total production in barrels of oil equivalent fell from 58.5 million to 55.8 million, but the higher prices more than made up the difference.
While Devon watches its share price rise between 2% and 3% today, Apache is down about 1%-2%, likely due to its heavy dependence on Gulf oil and gas. Exxon, which is far larger than Apache, is not so dependent on the Gulf and its shares are holding about even. BP, ironically, is up about 1% but that is almost entirely due to its having lost so much value since the Deepwater Horizon explosion that has left 11 workers still missing and presumed dead.
In the Gulf, BP has successfully attached a valve to one of the three leaks in the pipe leading from the well. The valve is closed and no oil is now leaking from that place, but that has not diminished the total flow from the well.
The main leak, from the broken end of the pipe, is set to be covered with a dome tomorrow that is intended to capture the flow from the well and allow the oil to be pumped to the surface. The dome is being loaded aboard ship today and should reach the Macondo site late tonight. BP expects placing the dome to take an additional 48 hours, depending on the weather. The goal is to have the leaking oil pumped on the drillship within six days.
The first relief well has been started, but that will take two or three months to reach the blown-out well. Even then, intercepting the seven-inch well bore at 18,000 feet below the sea floor is not a trivial matter. A second drilling rig should be on-site in 10-12 days to begin drilling a second relief well in the event the first is unsuccessful.
BP continues to evaluate installing a new blow-out preventer (BOP) on top of the existing well. This is the riskiest operation being considered because the exact pressure inside the blown-out well is hidden by a crimp in the leaking pipe leading to the surface. If the new BOP is installed, the real pressure in the well may prove to be too much for the 15,000 psi wellhead connector inside the new BOP. If that happens, oil is very likely to spew from the well at higher volumes than 5,000 b/d.
BP is also continuing to spray dispersant on the leak. The chemical causes the flow to break up and sink to the sea floor. No one knows how this will affect the deep ocean ecosystem or how that will be cleaned up later.
On the surface, no oil has yet made landfall according to the US Coast Guard. Winds have turned offshore, helping to keep the massive slick from reaching land for an estimated three more days.
Representatives of BP, Halliburton Co. (NYSE:HAL), and TransOcean Ltd. (NYSE:RIG) met with members of Congress yesterday and are reported to have said that the flow from the well could be 10 times worse than the current estimate of 5,000 b/d. The companies apparently discussed a worst-case scenario, where all the remedies being considered fail, and were unable to propose a solution.
The potential for an unprecedented environmental disaster is appallingly close. Whether such a catastrophe is avoided, recriminations, tougher regulations, and lawsuits will follow. Any expansion of offshore drilling as proposed by President Obama is certainly off the table for some time. Climate and energy legislation will almost certainly be stalled and could be tabled indefinitely.
One change the Obama administration is already asking for is to raise the cap on damages from oil spills set by the Oil Pollution Act passed during the Bush administration in 1990. The limit on damages was set at $75 million, a cost which BP has certainly already topped. Some US senators want to raise the limit to $10 billion, which may still be lower than the total.
The awful thing is that things could get much, much worse in the Gulf and not before they get better. If the plans that BP has made all fail, no one appears to have a clue what to do next.
Paul Ausick
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