Jim Letourneau's Blog

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The Gulf of Mexico and BP will survive

Footage of oil spewing out of the Gulf of Mexico sea floor has become a daily news fixture.  Unfortunately the odds of taming this well before 2 relief wells are finished drilling are not very high. The realities of drilling engineering is that they will take until August to complete. This is not an acceptable option to the American public. The appearance of doing "something" is required and James Cameron is being called in to offer his suggestions on killing the well. In spite of his technical prowess, I don't think using the shiny water tentacles of non-terrestrial intelligences (NTIs) will work. Matthew Simmons has suggested using nuclear devices to stop the flow oil. Armchair quarterbacks aren't going to fix this problem but thankfully drill bits are turning on the relief wells.

While things are looking pretty grim for the Gulf of Mexico, it is no stranger to having oil contaminate its ecosystem. Indeed natural processes are responsible for over 60 percent of the petroleum entering North American waters according to the National Academies. I'm not saying the BP disaster is excusable but sometimes having some sense of proportion can lead informed discussion instead of a media circus. The NASA Earth Observatory scientists estimated in 2000 that oil seeps from the sea floor at over 600 locations. In aggregate, the annual volume of natural seepage in the Gulf of Mexico is conservatively estimated to equal that of two Exxon Valdez spills every year. The issue with the BP disaster is that all the oil is coming from a single source like a fire hose instead of hundreds of leaking faucets. The use of dispersants may help mitigate the damage and give hydrocarbon degrading microbes a better chance to chow down on some of the spill.

Meanwhile shares of BP continue to plummet and British pensioners are now at risk of having their retirement income slide into the abyss.

BP is the most important company on the UK stock market by a considerable margin. Roughly £1 in every £6 received in dividends by UK pension funds comes from BP, so a cut would severely impact almost every saver in the land.

from The Times

Who knew that BP stood for British pensions?

15 year monthly chart of BP Amoco .


There are worse businesses than drilling for oil - BP has the means and ability to both stop the flow of oil and pay for the cleanup. Unlike the banking industry which has been a net taker of federal funds, offshore drilling generates roughly $6 billion/year to the federal treasury in addition to creating thousands of jobs and reducing US dependence on foreign oil.

Thanks to Bernie Hensel of Raymond James for passing along the pension article.