North Sea Gas Leak Could Cost Owners Billions Of Dollars-Analysts
03/29/2012| 05:10am US/Eastern
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By Sarah Kent, Geraldine Amiel and Benoit Faucon
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A major gas leak at the Elgin field in the North Sea could cost its owners billions of dollars in the worst-case scenario, analysts said this week.
The gas leak, which started Sunday, forced Total SA (TOT) -- the field's operator and largest shareholder -- to shut down operations at the platform. The French oil and gas producer hasn't said whether it has determined how to stop the gas leak or extinguish a flare, which is still burning on the platform.
Major stakeholders include Total with a 46.2% stake in the Elgin field, Italy's Eni SpA (E) with 21.9% and the U.K.'s BG Group PLC (BG.LN) with 14.1%. News of the leak has whittled away at the companies' share prices. Total's shares have fallen around 8% since Monday, while Eni's are down 2% and BG's are down around 4%, but some analysts see this as overdone.
Since the situation remains very fluid, analysts were reluctant to put a precise figure on the possible cost of the incident. One possibility under consideration is to drill a relief well, which could take up to six months and cost Total around EUR44 million, based on current jack-up day rates, Exxane BNP Paribas' analysts said.
RBC Capital Markets analysts put the time frame for drilling a relief well at up to seven months and the cost of mobilizing a nearby rig, which is already contracted to Total, at up to $200 million, assuming full rig costs of $1 million per day.
Charles-Etienne Lebatard, the head of Total's press office, said Thursday, "It is too early at this stage to estimate the cost of the incident."
So far, Total has only estimated that the loss of income amounts to $1.5 million per day.
In the "best-case scenario," on the other hand, the gas leak could die down on its own and Total would be able to restart production within months, or even weeks, said Kim Fustier, an analyst at Credit Suisse.
The earnings impact for Total could be roughly 1%-2% for 2012, in which case the current drop in share prices "looks like an over-reaction," Fustier said.
In the worst-case scenario, however, a gas cloud that has formed around the field could ignite, which could destroy a big production asset for Total, BG and Eni. Analysts at Jefferies pegged the value of Total's share in the Elgin field at $3.3 billion.
Still, analysts said that this scenario is unlikely and the Elgin gas-leak is not a "Macondo-style event," similar to BP PLC's (BP) giant oil spill in the Gulf of Mexico in 2010, which has cost the company tens of billions of dollars for the clean-up and fines associated with the leak.
It is not yet clear whether Total or its partners will be held liable for the Elgin gas leak, but fines in the U.K. for oil disasters appear to be relatively mild--as Total itself has previously experienced.
A major fire at the Buncefield oil depot in December 2005 led to a cost of GBP1 billion in physical damage, loss of fuel and emergency response, according to a 2005 report by U.K. government officials and safety experts.
But a U.K. court ordered Total -- the majority owner of the company that owned the depot -- to pay GBP6.2 million for the disaster in 2010, part of a broader penalty of around GBP9.5 million for all companies involved.
-By Sarah Kent, Geraldine Amiel and Benoit Faucon, Dow Jones Newswires; 4420-7842-9376; sarah.kent@dowjones.com
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