Tuesday, May 25, 2010

How Much Does $500,000 Really Cost?
Bloomberg TV just had a segment stating that since the start of the oil spill in the Gulf, British Petroleum has lost $57 billion in market capitalizaton.  Bloomberg estimates that clean-up will cost BP $24 billion.  And who can estimate far ranging legal and settlement costs, which will extend for years.  The oil and gas industry successfully fought regulation that would require the installation of a remote acoustic trigger to shut off oil wells in the event of a blow out.   Acoustic triggers cost $500,000.  There is no guarantee that the trigger would have worked to stop the flow of oil at BP's well, but countries with extensive off shore drilling, like Norway and Brazil, require these devices.  At a price of $70 per barrel of oil, the trigger is the equivalent of 7,150 barrels of oil.  It is estimated that the BP well is leaking 75,000 barrels a day.   The switch would have been two hours and twenty minutes of production.  At this point, I don't think BP will survive this disaster.  I hope other oil companies are looking at this example, and are realizing that $500,000 is cheap.  Here is a link to a Wall Street Journal article discussing the acoustic valves.

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