Total reassure public that damage from its gas leak will be limited soon
Oil giant Total has moved to reassure investors and environmental activists over the past week that the financial and environmental damage from its gas leak in the North Sea would be limited, a task made more difficult by comparisons to BP’s handling of a catastrophic oil spill in the Gulf of Mexico nearly two years ago.
Initial data showed that the leak from Total’s platform in the Elgin gas field 150 miles (250 kilometers) off the coast of Scotland – which was first detected March 25 – was pouring out about 7 million cubic feet (200,000 cubic meters) of natural gas each day. On Friday, the company said the rate of the leak appeared to have slowed but had no new figure.
In a conference call to analysts and reporters last week, Total Chief Financial Officer Patrick de La Chevardiere appealed to those listening to avoid comparisons between the Elgin leak and the Gulf spill at BP’s Macondo well.
“While we understand that comparisons to Macondo are inevitable, we would like to state clearly that the situations are very different,” he said. “There is no crude oil involved here and therefore the current impact on and risks for the environment are relatively low.”
The Elgin leak is also on a smaller scale, according to George Hirasaki, a chemical engineering professor at Rice University in Texas who has worked in the oil industry. “It’s more of a very dangerous situation rather than a disaster so they may be able to get it back under control with minimal losses,” he said.
Total moved to dispel fears of an explosion or any long-lasting environmental damage, saying that gas is dissipating quickly. A spokesman for the company said Thursday that about 40 cubic feet (1.2 cubic meters) of gas condensate remains in the water. He spoke on condition of anonymity, citing policy.
Environmental activist group Greenpeace, however, has sent a boat to the area to take air and water samples. It said its tests would reveal in the coming days whether it considers whether the leak will cause damage to the environment or wildlife in the area. In the meantime, the group did note that the gas escaping is mostly methane, which is “20 times more dangerous for the climate than CO2 (carbon dioxide).”
During the Gulf spill, roughly 200 million gallons (780 million liters) of oil spewed from the blown-out well. The spill affected sensitive tidal estuaries and beaches, killed wildlife and closed vast areas of the Gulf to commercial fishing for months.
The disaster cost BP chief executive Tony Hayward his job after a series of public relations gaffes and derailed the company’s attempt to create an environmentally friendly image. BP has been hit with several lawsuits, which will likely cost it tens of billions of dollars to resolve.
To pay for the cleanup and claims, BP was forced to cut its dividend, borrow money and sell off tens of billions of dollars in assets. The company’s share price is still some 30 percent below its 6.55 pound ($10.39) close before the spill on April 20, 2010.
Total, however, is so confident that the leak will have minimal environmental impact that de La Chevardiere spent most of a recent call with analysts and journalists discussing the financial consequences. Those, too, he said, are manageable.
Still, it’s unclear how quickly Total will be able to stop the leak. It is currently trying to get a team back on the platform to attempt to plug the leak by pumping in mud. On Thursday, a handful of experts landed on the platform for a few hours to gather data on the leak and figure out if it was safe to begin trying to plug it.
Total is also preparing to drill relief wells, in case that first method doesn’t work.
Drilling relief wells is an expensive and a fairly long process. When asked whether an estimate of six months was reasonable on the analyst call, Michel Hourcard, the director of development for Total’s exploration and production arm, said it was.
Currently, the cost of the response is around $1 million per day, said de La Chevardiere. If relief wells are needed, the costs will rise to $1.5 million per day, while they’re being drilled.
Added to those costs is the loss of production. The current impact on the company’s net operating income is about $1.5 million per day, he said. That’s a small fraction of the $16 billion in net operating income the company reported last year, and ratings agencies have indicated they are not concerned.
It’s also nowhere near the around $40 billion BP has estimated the 85-day Gulf spill cost them, including response and compensation. Those costs are in flux because not all litigation has been resolved.
“Even in the event of the shutdown of the whole Elgin field, Fitch believes Total is likely to retain its ‘AA’ credit rating as it has the cash resources to more than cover any associated costs,” Fitch said in a statement a few days into the leak. “These sorts of accidents are often difficult to resolve and unpredictable; nonetheless, in our view the potential is low for this leak to escalate to a crisis on the scale of Deepwater Horizon.”
But, as de La Chevardiere noted, the comparisons are almost irresistible.
“The comparison (with the Gulf spill) now is wholly unavoidable, just as for BP and the Deepwater Horizon spill, the comparison with Exxon Valdez was unavoidable,” said Gene Grabowski, a senior vice president with Levick Strategic Communications, which advises clients on communicating in a crisis. “We have a new standard by which all leaks will be measured.”
But that doesn’t mean that the mere invocation of BP sullies Total’s reputation. Grabowski said that if the environmental damage is limited, then he expected the long-term impact of the spill to be fairly muted.
Eric Smith, the associate director of the Energy Institute at Tulane University in Louisiana, said the company appeared to have learned one lesson from BP: that less information is better. He pointed to the fact that industry experts had expected most of the ways BP tried to plug its leak would fail; that’s simply how disaster-response works. You try everything, and all you need is one solution.
“The problem with too much transparency when you’re in the middle of a situation like that is you know there are going to be failures,” he said. “The one lesson everybody learned (from the Gulf spill) is to turn the TV cameras off.”
In the Gulf, an underwater camera showed oil gushing out of the well in real time. Media tracked the spread of a slick that took days to reach shore. And photos of sea birds covered in oil drove home the damage.
By contrast, photos of the Total rig initially showed a small flame. That raised concern of an explosion but has since gone out, and now the rig looks fairly normal, at least to layman’s eyes.
“As long as they don’t make any ridiculous statement, they’re going to benefit from the fact that there are no good pictures for this and that the environmental impact is unclear and that the constant glare of the U.S. media is not on this,” Grabowski said.
Source: Huffington Post