Ultimate Costs of the Disaster: Seven Years After the Deepwater Horizon Oil Spill

AuthorXavier Garza‐Gomez,Rose M. Lee,Yong Gyo Lee
Date01 January 2018
Published date01 January 2018
© 2018 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22306
Ultimate Costs of the Disaster:
Seven Years After the Deepwater
Horizon Oil Spill
Yong Gyo Lee, Xavier Garza-Gomez, and Rose M. Lee
This study
assesses the ulti-
mate costs asso-
ciated with America’s
largest disaster in the
oil and gas industry,
the 2010 Deepwater
Horizon oil spill. On
April 10, 2010, the
Macondo Oil Well—
located 45 miles from
the Louisiana coast
and owned by Trans-
and the subsequent
fire destroyed the
Deepwater Horizon
drilling rig, killed
11 people working
aboard, and spilled
approximately 3.19
million barrels of
crude oil into the
Gulf of Mexico over
the next four months
before finally being
sealed in August
2010. The oil spilled
contaminated about
400 square miles of the sea floor
and 1,300 miles of shoreline
of the Gulf of Mexico. The
spill damaged fisheries, beaches,
and coastal wetlands.
It also harmed an
unknown number
of birds, sea turtles,
marine mammals,
fishes, oysters, and
other sea life. Imme-
diately after the
explosion, BP and
the federal govern-
ment struggled to
contain the spill and
coordinate a massive
response effort to
clean up the coastlines.
The costs asso-
ciated with the oil
spill cleaning efforts
started to get larger
and larger as time
progressed. As a
response to respon-
sibility under the
Oil Pollution Act
(OPA), BP promised
to pay all the neces-
sary expenses in May
2010 without seeking
the reimbursement
of payments above the $75 mil-
lion limit of liability. In June
Seven years after the Deepwater Horizon oil spill,
this study measures the “ultimate” cost of the
disaster. This study compiles all the costs to be
borne by BP, which include charges and expenses
directly related to the spill, the various fines and
penalties to be paid, reimbursements and recover-
ies from other parties, securities-related charges,
and hidden costs. This study documents an ulti-
mate cost to BP of $144.89 billion in the United
States, which is more than two times larger than
the $62.59 billion BP reported in its income state-
ment. This study provides details on the computa-
tion. The sharp increase is due to the inclusion of
other categories of costs related to the oil spill,
including the $19.33 billion committed by BP in
a global settlement in April 2016; the contingent
liabilities of $700 million, the settlements of $175
million with the Securities and Exchange Commis-
sion; legal fees of $680 million, and the hidden
costs of $61.41 billion that was not reportable
under the current accounting system. This figure
will eventually become higher once we learn about
costs related to litigations in Mexico.
© 2018 Wiley Periodicals, Inc.
Refereed (Double-Blind
Peer Reviewed)

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