BP to face isolation from industry at hearings
Top competitors are expected to distance themselves from BP Plc on Tuesday as normally clubby oil industry executives gather for a Capitol Hill grilling on the worst oil spill in U.S. history.
With the mid-term congressional elections looming, U.S. lawmakers summoned top executives from Big Oil -- including BP -- in what is likely to be a heated showdown on the safety of drilling in the deep waters off America's coasts.
The top executives from Exxon Mobil, Chevron, ConocoPhillips and Royal Dutch Shell, can be expected to turn on BP, whose survival as an independent company is increasingly being questioned.
Industry officials are expected to loudly vouch for safety at their own operations and their superior abilities to handle an incident akin to the BP disaster that has caused millions of gallons of oil to spew into the Gulf since April.
"This incident represents a dramatic departure from the industry norm in deepwater drilling," Exxon Mobil Chairman and chief executive Rex Tillerson said in prepared testimony obtained by Reuters. Tillerson said if wells are properly designed and inspected, accidents like the current spill "should not occur."
BP America head Lamar McKay will be on the hotseat on Tuesday and on Thursday BP chief executive Tony Hayward will make his first appearance at a congressional hearing since the Deepwater Horizon accident.
Both hearings present a significant risk to BP and to the future of U.S. offshore drilling, as lawmakers begin to consider legislative options to address the massive Gulf oil spill and to possibly increase the penalties companies will face.
Representatives Henry Waxman and Bart Stupak said BP put profits over safety because the leased Deepwater Horizon rig was 43 days late for its next assignment, costing BP as much as $21 million in leasing fees. "It may also have set the context for the series of decisions that BP made in the days and hours before the blowout," they said in a letter.
With spilled oil ravaging the Gulf Coast and now hitting Florida, the fallout from the accident is growing, putting the Obama administration under pressure to take action.
President Barack Obama could call for energy legislation and new oil safety provisions when he addresses the nation on Tuesday. The next day he will meet BP Chairman Carl-Henric Svanberg and press him to set up an independently managed fund to pay damage claims.
At the hearing, lawmakers and investors will be looking for any sign from oil executives that BP may have cut corners or not followed generally accepted industry practices.
"If they say that, it would definitely be damaging for BP," said Evgeny Solovyov, analyst at Societe Generale in London said.
With BP facing ballooning damages, the company's shares have fallen more than 40 percent on concerns it may not be able survive the Gulf disaster. Its future may hinge on legislative and regulatory decisions going forward.
"When the company goes before Congress, it's going to be sort of like when Goldman Sachs went before Congress a few weeks ago," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
"It's going to be full of drama; it's going to be ugly for BP officials and there's probably not going to be a lot gained from the experience," he added.
Senate leaders have called on BP to make a $20 billion initial deposit into a fund to pay liability claims. Some lawmakers have also called on BP to suspend its dividend.
All of the oil company heads will undoubtedly face intense questioning about their ability to prevent or contain similar rig accidents at the Tuesday hearing hosted by a House Energy and Commerce subcommittee. The panel's chairman, Massachusetts Democrat Edward Markey, is an especially tough critic of so called Big Oil.
Although BP is taking most of the heat now, the whole industry has felt the effects of the Gulf oil spill, with a six month moratorium on deepwater offshore drilling and tighter safety rules.
[Source: By Ayesha Rascoe, Reuters, Washington, 14Jun10]
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