Thursday, June 24, 2010

Crude Oil Industry: Still Economically Viable?

With a somewhat costly cleanup and huge compensation costs slated to be paid out by BP due to the Gulf of Mexico oil spill, is the crude oil extraction industry still economically viable?

By: Ringo Bones

With the Gulf of Mexico oil spill now on its 65th day - and counting, add to that calls for a boycott of BP products (like if that’s even possible), many now wonder whether the crude oil extraction industry is still economically viable. Oil industry experts say that it will probably take a hundred BP Gulf of Mexico sized oil spills occurring per year before safety concerns about offshore oil drilling get serious budgetary reconsideration in order to maintain profits - precipitous drop in share prices notwithstanding.

BP’s competitors – i.e. other oil companies – had accused BP of operating outside the industry’s norms when it comes to their safety budget. Case in point is the 1998 memo from London to their US subsidiaries ordering a 25% operation cost cutting measures that eventually compromised their operational safety. Unfortunately leading to the disastrous BP refinery explosion in Texas City back in March 23, 2005. Recent Capitol Hill grilling of BP had even uncovered safety concerns of a former Deep Horizon rig worker named Tyrone Benton being disregarded due to the company’s cost cutting measures.

When it comes to boycotting multi-national corporations who don’t know the meaning of corporate social responsibility – like BP – just skip filling up your car in BP affiliated gas stations. But when it comes to your where your pension fund is invested, it can be a bit harder because unless you have a very gifted hedge fund manager, it is very likely that your pension fund is invested in crude oil ETFs to maximize its rate of return. You know those crude oil companies that had been suspected for sometime of assassinating local environmentalists who are not very friendly with “big oil”. Economically viable or not, the true cost of oil extraction companies usually shows up on their impact to the environment and of the social stability in their sphere of operation – especially when other complications are now in the picture like former 9 / 11 victims relief fund chief David Feinberg now overseeing the 20 billion dollar BP Gulf of Mexico oil spill compensation fund.

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