By now you will likely have heard of the events transpiring in the Gulf of Mexico. As we write this the spill has been growing at the rate of 5,000 barrels of oil per day. A British Petroleum offshore oil rig caught fire, exploded and sank on April 20th. Just two days before Earth Day.
What is disturbing about this spill is that, unlike a tanker spilling oil, there is no finite amount that could spill. It was initially stated there was 1,000 barrels a day spewing from the well head at the bottom of the ocean, a mile down, and that robots were being used to shut the well off. That initial assessment has evolved to the current situation where oil is leaking from three areas and at a rate of 5,000 barrels per day. And to add to the problem, it is estimated that it may take up to 90 days to fix the blowout.
Now oil spills in the Gulf of Mexico are not news. They occur with alarming frequency but they are typically contained fairly quickly even though any oil spill is unacceptable. However, this one is charting new territory. The well head is a mile down. It is leaking uncontrollably. At its current rate it will surpass the Exxon Valdez disaster by June 10, 2010. By the date it is expected the leak will be stopped, 90 days from now, it will be TWICE the size of the Exxon Valdez disaster.
Frankly, our opinion is that British Petroleum has no idea when this will be solved. There is the potential, and we have no other information other than our opinion, that this well could run uncontrolled for a long time. Even using the BP figure of another 90 days to solve this problem we (and yes I mean WE as in everyone who uses petroleum products) will have created one of the largest environmental disasters ever on this planet.
From my perspective the questions are "What will it take before we commit to serious changes?" and "How big of a hammer has to hit us on the head before we stop this nonsense?". From an investment perspective it is leading our firm to assess whether or not we want to invest in these firms at all no matter what their ESG ranking is from any assessment. I can bet you have an idea of where we are headed with that decision.