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Oil spill cleanup: After digging deep to kill well, BP faces long climb

Killing the well at this point was the easy part of the oil spill cleanup for the beleaguered corporate giant, whose image will be stained, and bottom line impacted, for years to come.

By Staff writer / September 20, 2010

A worker monitors the cementing of BP's Macondo well from onboard the Transocean DD III in the Gulf of Mexico Sept. 17.

Marc Morrison/REUTERS

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Atlanta

A big squirt of concrete and it was done. Five months after the start of the Gulf oil spill, BP on Sunday finally killed the renegade Macondo well, which shared its name with the doomed town in Gabriel Garcia Marquez's book "One Hundred Years of Solitude."

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The final relief well "kill" – performed 18,000 feet below the sea floor – provided little more than a symbolic end to a summer-long disaster that put the Gulf oil industry, resort towns, and fishing communities in the grip of a crude-infused calamity that reopened wounds from hurricane Katrina five years earlier.

To be sure, troubling questions remain about the amount of oil left in Gulf waters, its impact on the complex coastal biology of the region, and the long-term economic effects of a six-month drilling ban and the 20 percent premium that explorers now expect to have to pay to drill new wells in the Gulf because of drilling delays and insurance rate hikes.

Despite a loss of nearly one-third of its stock value (or $70 billion) since the spill began, BP will endure in the Gulf, where untapped deep-water deposits shape its future as an oil company. But given the overall hit to its corporate reputation and stock price, and after a series of PR blunders under former chief Tony Hayward, BP knows it must build a new image, much as Exxon did after the Valdez disaster in 1989. And with deeds, not words.

"This is ultimately a story about corporate reputation and corporate liability," says James O'Rourke, a management professor at the University of Notre Dame in Indiana. "Clearly, the litigators want everybody to shut up and say nothing and then fight the battle in court. But ultimately the court of public opinion may determine more of the company's forward success than a court of law."

Impact on bottom line

BP has paid out $9.5 billion to combat the spill, kill the well, and remunerate victims – a figure that BP says could ultimately climb to $32 billion. Though that's not likely to doom a company with an average annual revenue stream of nearly $250 billion, uncertain liabilities could increase the impact on BP's bottom line beyond that figure. Unresolved issues include restrictions on BP's ability to drill and the settlement of thousands of civil lawsuits piling up in courthouses along the Gulf Coast.

More broadly, the accident is likely to alter how business gets done in the Gulf, and not just for BP. The result may be that drilling will be safer, but it will also be more expensive, which could shake out some industry players and affect everything from gasoline prices to US energy independence. Four major drilling rigs, including the Deepwater Ocean Confidence, have left or are leaving the Gulf due to the drilling moratorium.

Tougher regulations and higher insurance rates present a "significant change [that] could affect the rate of oil production from the Gulf many years from now and ultimately the amount of oil that can be recovered from the region -- another long-term blow for the import-dependent U.S. economy," writes James Herron for The Wall Street Journal's "The Source" blog.

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