NEW YORK (Reuters) - BP Plc’s (BP.L) huge Gulf of Mexico oil spill could force smaller players in the Gulf to consolidate or sell assets, as higher regulatory costs and legal risks make operating there too expensive, investment bankers said.
While the new regulations and legal liabilities stemming from the spill are still unknown, Perella Weinberg Partner Michael Dickman said the higher costs to operate in the Gulf could be prohibitive for smaller players.
“It certainly has a high potential to drive consolidation,” Dickman told the Reuters Global Energy Summit. “If the cost liabilities are higher, the question has to be whether the Gulf of Mexico, especially in the deepwater, is going to be an area where smaller companies can compete.”
Since the April 20 explosion that sank the Deepwater Horizon rig and killed 11 workers, the blown-out well beneath the surface has spewed hundreds of thousands of gallons (liters) of oil into the Gulf in what threatens to become the United States’ worst-ever oil spill.
President Barack Obama has created a presidential commission to probe the oil spill that will investigate issues related to the spill and its aftermath, including rig safety and regulatory regimes at the local, state and federal levels.
Because the actual costs of new regulations are unknown, nobody is looking for an exit from the Gulf yet. Indeed, the uncertainty created by the spill would probably have a dampening effect on M&A in the near term, Dickman said.
“There’s a huge degree of uncertainty about what the outcome from a regulatory, from a legal, from an environmental perspective will be. That level of uncertainty has to make people think twice before they consummate an acquisition,” he said.
Still, as the costs become clear, smaller players will likely start looking to sell out, bankers said.
“The likely outcome is it will result in higher costs ... and if that’s the case it becomes a big players’ game,” said Stephen Trauber, global head of energy investment banking at UBS. “And if it’s a big players’ game, then I think you’ll see the smaller companies look to sell out at some point in the future.”
Reporting by Michael Erman and Braden Reddall; Editing by Tim Dobbyn