BP weakness 2011

BP is involved in one of the worst environmental disasters in the US. In April 2010, an explosion
occurred on the Transocean's rig which was drilling an exploration well on BP operated license.The rig was located approximately 41 miles offshore Louisiana on Mississippi Canyon block 252. The explosion killed 11 workers. Subsequently, the rig worth over $500 million sank triggering an oil spill in the Gulf of Mexico, the largest accidental marine oil spill in the history of the petroleum industry. During July 2010, the leak was stopped by capping the gushing wellhead, after it had released about 4.9 million barrels of crude oil. It was estimated that 53,000 barrels per day were escaping from the well just before it was capped. In September 2010, the relief well process was successfully completed, and the federal government declared the well effectively dead. As a responsible party, the company made swift payments to support local economies, and gave a total of $138 million in direct state grants during FY2010, which included behavioral health programs.

BP has also set up the $20 billion Deepwater Horizon Oil Spill Trust to meet individual, business,
government, local and state claims, and natural resource damages. The company provided $500
million for the Gulf of Mexico Research Initiative, which is funding independent research to investigate impacts on affected ecosystems. Furthermore, the company contributed a $100 million fund to support rig workers hit by the drilling moratorium. Overall the company recognized charges totaling $40.9 billion in FY2010 as a result of the incident. To meet its financial commitments, BP announced the sale of up to $30 billion in assets and, by the
end of 2010, had agreed to $22 billion of disposals. Moreover, the Gulf of Mexico oil spill has damaged BP’s reputation, which may have a long-term impact on the group’s ability to access new opportunities, both in the US and elsewhere. Adverse public, political, and industry sentiment towards BP , and towards oil and gas drilling activities generally, could damage or impair the company’s existing commercial relationships with counterparties, partners, and host governments. In addition, responding to the incident has placed, and will continue to place, a significant burden on BP’s cash flow over the next several years, which could also impede its ability to invest in new opportunities and deliver long-term growth.

Explosion in the Texas refinery
In March 2005, an explosion and fire occurred in the isomerization unit of BP Products' Texas City refinery. Fifteen workers died in the incident and many others were injured. In October 2007, the US Department of Justice (DOJ) announced that it had entered into a criminal plea agreement with BP Products related to the explosion and fire. In February 2008, BP Products pleaded guilty, pursuant to the plea agreement, to one felony violation of the risk management planning regulations promulgated under the US federal Clean Air Act. The company paid a $50 million criminal fine and was sentenced to three years' probation.
In addition, the Texas Office of Attorney General, on behalf of the Texas Commission on
Environmental Quality (TCEQ) filed a petition against BP Products asserting certain air emission
and reporting violations at the Texas City refinery from 2005 to 2009, including the March 2005 explosion and fire. In September 2009, BP Products filed a petition to clarify specific required actions and deadlines under the 2005 Settlement Agreement with the Occupational Safety and Health Act (OSHA). That agreement resolved citations issued in connection with the March 2005 Texas City refinery explosion. OSHA has denied BP Products' petition. In October 2009, OSHA issued the Texas City Refinery citations seeking a total of $87.4 million civil penalty for alleged violations of the 2005 Agreement and alleged process safety management violations. The fine was the largest in OSHA's history, and BP Products contested the citations.
Later in August 2010, a settlement agreement between BP Products and OSHA resolved the petitionfiled by BP Products in September 2009 and the alleged violations of the 2005 Agreement. The company agreed to pay $50.6 million of the October 30 fine, while continuing to contest the remaining $30.7 million; the fine had been reduced by $6.1 million between when it was levied and when BP paid the first part. Such events causing environmental damage could result in heavy financial penalties for the company eroding its profits. In addition, such law suits could also tarnish its brand image.