BP's struggles to stop the largest oil spill in U.S. history almost ensures that it will become intensely difficult for the company to prevent its credit rating, not to mention its image, from sinking for years to come. Still NACM's economic analyst believes the problem is relegated to just one company in the oil sector and other small industry sectors, meaning a massive national economic impact remains unlikely. That is unless a worst case scenario rears its head during hurricane season.
has continued to botch its efforts to stop the massive Gulf Coast leak
more than a month after an explosion and failed cut-off started the
growing mess, saw its credit rating dropped this week by all three major
ratings agencies: Moody's Investment Services, Fitch Ratings and,
following their counterparts' lead, Standard & Poor's. Despite the
ratings agencies own ongoing credibility problems (see related story in
NACM's June 8 eNews), the lower ratings could signal big problems for
BP. The ratings agencies explained their respective decisions by noting
concerns that include the potential for mounting cleanup and legal costs
that could be long-term, the possibility of federally levied criminal
charges or cease/desist orders that prevent future BP drilling and a
lack of confidence in the company's ability to stop the leak.
Economic Analyst Chris Kuehl, Ph.D, of Armada Corporate Intelligence,
said he believes most other oil companies won't be badly wounded by this
situation. However, it is likely BP will become subject to rampant
rumors of takeovers in the coming years and will be spending large
amounts of effort cleaning up its mess while its competitors are moving
into new, profitable areas. Kuehl said the oil drilling industry, even
in the Gulf, is unlikely to be brought to a halt because the drilling
areas are dependent on three major industries: oil, fishing and tourism.
And BP's snafu has pretty much destroyed the latter two.
tourism and fishing still only bring in less than one-quarter of what
oil brings in," said Kuehl, noting there are more than 4,000 rigs and
accompanying jobs in the Gulf alone. "That's the economic reality of
their world. If you take away oil, what are they going to have left?"
also reiterated the general economy very likely won't be affected
significantly by this disaster. He called it an emotional issue, mainly
because of environmental degradation and media stories on struggling
fisherman from the Gulf area, more than a real economic issue. Kuehl
noted there have been oil spills occurring in Nigeria of this magnitude
for 20 years that few discuss, or even know about. The true threat to
the economy, long-shot as it is, would be a sort of perfect storm during
2010's hurricane season. Forecasts aren't calling for a particularly
active, strong storm season in the spill's heavily impacted area - but
anything can change.
"If you get a really badly placed storm that
drives the oil over all the barriers and shifts prevailing winds in
different directions [like toward the Texas coast or beyond the Florida
peninsula], and the cleanup is truly catastrophic, the interdiction
efforts will become overwhelmed," said Kuehl. "That could end up
inundating cities and driving oil into farm country, where you'd see
things affected like cotton and rice."
Brian Shappell, NACM staff writer