The Gulf of Mexico oil spill created economic losers and winners, walloping the fishing and tourism industry while fueling a boom for companies involved in cleanup.
BP PLC faces billions of dollars in costs, but companies like oil giant Exxon Mobil Corp. and smaller Los Angeles-based Occidental Petroleum Corp. might see some advantages, analysts said.
Political beneficiaries and casualties are likely as well, although who will win is not clear.
Democrats got a big boost yesterday when Rep. Joe Barton of Texas -- the top Republican on the House Energy and Commerce Committee -- apologized to BP for what he called a $20 billion "shakedown" by President Obama for loss claims in the oil spill. But the spill alone might not motivate action on Obama's push for clean-energy legislation before November's election, especially with expanded offshore drilling off the negotiating table.
"It gives some added impetus but also takes away some of the grease you need to turn the wheels," on climate legislation, said Sam Thernstrom, who worked at President George W. Bush's White House Council on Environmental Quality and now is a fellow at the American Enterprise Institute, or AEI. "In the short term the grease is probably more important. In the long term maybe it's the impetus."
"The big picture dynamics are still very muddied here," Thernstrom added.
Disasters historically have driven policy changes. The major oil spill in Santa Barbara, Calif., in 1969 "brought an end to offshore drilling for decades," Thernstrom said. The Three Mile Island nuclear power plant accident "killed prospects of building nuclear power plants for decades." That reshuffled energy players, he said, spurring a surge in coal plant construction.
"Certainly, disasters like this can create impetus for legislation," Thernstrom said. "But it can be legislation in haste."
The BP spill, like other calamities, has led to some financial winners.
"Clearly people who will benefit from this are people who make dispersants, cleanup boom manufacturers," those who sell oil skimmers, said Frank Maisano, an energy industry specialist at law firm Bracewell & Giuliani.
"Not only are they going to be used more now," but will be on demand in the future if there are regulations requiring "that you have better relationships and better emergency planning," Maisano said.
Disasters create short-term growth in small areas, said Ted Gayer, co-director of the economic studies program at the Brookings Institution. But it is important to remember, he said, that the big picture economically is not a positive one because more wealth was destroyed than built by the spill.
"You have a disaster, somebody hires a construction crew to clean up, you see that," Gayer said. "What you don't see is where that money would have been spent to make new stuff.
"It's not a good thing, on net," Gayer added.
Companies benefiting from the cleanup work include those that make booms to block oil, skimmers, portable tanks and dispersants used to break up the petroleum.
Business at Florida-based Granite Environmental surged following the April 20 explosion that led to the spill, CEO Mark Wilkie said. The company makes products being used in the cleanup.
Wilkie has hired 15 new people in Florida, 24 in Oklahoma and is redirecting 18 in Mississippi who just finished a military contract.
Right now the company is "about even" financially, Wilkie said, because it had to shift from its normal seasonal business of selling environmental pollution control products for construction sites. But he sees the spill work as enduring.
"The effects of the spill I think we are going to see for at least three to five years, in our projections," Wilkie said. "I can certainly see that the cleanup efforts are going to continue for many years."
Given that outlook, he said, more companies are likely to try to compete.
"Anyone that's got the tools to be able to basically convert vinyl," such as makers of pond liners, awnings, truck bed and boat covers, could flood the market and even create a "mini-bubble," Wilkie said.
In the dispersant-making field, the boom so far has been limited to one company.
Illinois-based Nalco manufactures Corexit 9500 and 9527, the only dispersants used in the gulf. Nalco said it has increased production of Corexit 9500 to meet the needs of the spill cleanup. Because of U.S. EPA's concerns, BP was asked to significantly decrease use of Corexit 9500, concentrating application below the surface, which EPA believes to be more effective. Nalco no longer manufactures Corexit 9527, the older formulation of the Corexit dispersant line.
But Nalco already has sold $40 million worth of Corexit. The company stands to make $800,000 to $6.5 million from its dispersant sales, Jeffries & Co Inc. analyst Laurence Alexander wrote in an advisory to investors. Alexander assumed a spill of roughly 200,000 to 1 million gallons a day.
Another chemical company is well-placed should drilling regulations change, Alexander wrote in another advisory.
Cabot Corp., a Massachusetts company, makes a cesium-based "drilling and completion fluid for high pressure, high temperature gas and oil well applications," Alexander wrote. It is mostly used in Norway, the United Kingdom and Kazakhstan, he wrote, but "tighter environmental regulations could favor Cabot as the sole provider of cesium formate."
The spill also is powering a surge in the legal business. In Florida, law firm Alters, Boldt, Brown, Rash and Culmo joined with three other large groups to handle all of their clients. Another firm in that coalition is Los Angeles-based Girardi Keese, headed by Tom Girardi, lawyer in the case made famous by the Erin Brokovich movie.
The lawyers group represents people in the seafood industry, including commercial fishermen but also seafood stores, tourist industries, retail processors and restaurants, said David Rash, partner at the Alters law firm.
"We've got several hundred [clients] and every day more people are contacting us," Rash said. "The numbers are just staggering."
In the Exxon Valdez oil spill case, ultimately there were about 30,000 plaintiffs, Rash said. The BP case, he said, is likely to become a multi-jurisdictional case before one judge.
Rash rejected that it is a financial windfall for attorneys. The clients currently are not paying anything, he said, and there are expenses to cover.
"We certainly hope to make money just like every business, but at the end of the day there are no guarantees," Rash said.
Oil companies among winners?
Congressional committees are examining the spill and there is talk of new policies as a result. While that could increase costs for oil companies in the future, tougher regulations are not necessarily a wholly bad thing for them, analysts said.
Exxon Mobil and Occidental Petroleum Corp. are among the companies best positioned should Congress enact stricter rules on offshore drilling in U.S. waters or should President Obama not rescind his order stopping an expansion of offshore drilling, said Charles Ebinger, director of the Energy Security Initiative at the Brookings Institution, a Washington think tank.
Occidental Petroleum has drilling operations worldwide, Ebinger said, including in Africa and Southeast Asia. Exxon has a large drilling presence in West Africa and Southeast Asia, he said, and very little economic stake in the Gulf of Mexico. The company's annual report shows that it also has extensive offshore operations in the Middle East.
"Less than 5 percent of our total liquids and gas production comes from the Gulf of Mexico," said Exxon Mobil spokeswoman Cynthia Bergman White. She declined to comment on whether the company was positioned to react well to any new regulations. Occidental Petroleum did not respond to several requests for comment.
However, if the BP spill slows down development of new offshore drilling, "it's going to have an impact on everyone," Ebinger said.
Exxon Mobil and other oil companies could benefit in other ways. Already there have been comparisons of BP's safety record to those of other oil and natural gas companies, said Kenneth Green, resident scholar at AEI.
Occupational Safety and Health Administration data shows that BP received "760 egregious, willful safety violations, while Sunoco and Conoco-Phillips each had eight, Citgo had two and Exxon had one comparable citation," ABC News reported May 27.
Profit or peril
The insurance industry potentially faces financial changes as Congress talks about lifting the $75 million cap on liability damages connected to an oil spill, but it is not clear whether that will mean more profits.
Companies pay for cleanup in addition to that liability total. And if they are found to be "grossly negligent," the cap does not apply, said Robert Hartwig, Insurance Information Institute president and economist.
If that $75 million limit is lifted, companies involved in offshore drilling likely will have to pay more for insurance, said Green with AEI.
But Hartwig said that does not automatically mean more money for insurance companies.
"Insuring for low probability, high-severity, high-costs events is very difficult for insurers," Hartwig said. "Insurers have to limit liability.
"There's greater risk," Hartwig added. "You cannot construe the higher price as a windfall. The downside is greater."
Most big oil companies, like BP, self-insure, he said. That means insurance companies would be protecting small- and medium-size firms, some of which might not be able to afford higher premiums.
Like what you see?
We thought you might.
Start a free trial now.