The implications of the April 2010 oil spill on deepwater exploration and production
This paper outlines the ramifications of BP’s Macondo well disaster for energy exploration and production (E&P) businesses. The prospects of drilling and operating in the Gulf of Mexico are uncertain, and E&P companies must grapple with a host of proposed regulatory changes. These companies will also face higher borrowing and insurance costs, as capital providers and insurers demand a higher risk premium for deepwater exploration activities. Significant regulatory changes in conjunction with a repricing of deepwater risk will have a drastic long-term impact on deepwater operators.
The white paper examines a number of factors that will influence the future of deepwater drilling in the Gulf including:
- The natural market reaction to the oil spill and the repricing of risk in light of BP’s $70 billion loss in market capitalization
- Proposed regulatory changes, the impact of stiffer civil and criminal penalties on deepwater exploration, and the case for industry self-regulation
- How increasing the economic liability cap will lead to industry consolidation
- How industry consolidation by larger E&P companies could result in a decline in Gulf oil production
- The long-term consequences of regulation and policymaking.
