How Much Did The Gulf Oil Spill Actually Cost British Petroleum Shareholders?

Abstract

On April 20, 2010, the Deepwater Horizon Drilling Platform, a British Petroleum (BP) licensed rig, exploded. Two days later the huge rig sank to thebottom of the Gulf of Mexico triggering the United States worst offshore oilspill. By April 26, investors and themarket began realizing that the costs associated with this catastrophic eventto BP could be significant and BP shares fell by over two percent. The next day BP reported its annual earningswhich showed a huge rise in profits, due in part to much higher oil prices forthe previous year and BPs common stock price increased. However, on May 6, 2010, analysts warned that the Gulf ofMexico oil spill disaster would likely cost BP over $23 billion dollars (15bn)and its shares can be expected to lag behind those of its competitors by 5% forthe lasting future. At the same time,Tony Hayward insisted the company would "bounce back" from thesetback though he could not give a timescale for when the flow of oil would behalted. This study investigated BPsstock returns using two models to determine if their stocks experiencedabnormal returns for the period April 20, 2010 through April 5, 2011. Results show that the most significant impact of the oilspill to the stock price was over the first 34 days of the event period. This study estimates a significant negativeimpact of 38% to 41% in share value for BP during this event period.