BP paid $65 billion in fines and compensation for the 2010 Deepwater Horizon oil spill, but a simulated version of the oil and gas company suggests there was no dent in long-term stock market performance
Fire at the offshore oil rig Deepwater Horizon on 21 April 2010
U.S. Coast Guard via Getty Images
The largest marine oil spill in US history had no impact on stock market returns for BP compared with those of a version of the company running in a simulation where the disaster never happened, according to researchers. They say their findings show that, in the absence of new regulations, it is unclear whether companies face sufficient deterrence to avoid major accidents.
However, the simulation suggests BP suffered reputational damage from the 2010 Deepwater Horizon spill in the long run.
BP paid out around $65 billion of fines and compensation after around 800 million litres of oil were released into the Gulf of Mexico, but it has been hard to quantify the broader consequences of the disaster for the firm because of the lack of a control against which to compare BP’s stock market performance and reputation. To fill the gap, Aseem Prakash at the University of Washington and his colleagues created “synthetic” versions of the company from 2010 to 2017.
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“We thought after this massive spill there should be a lasting damage on the stock price,” says Prakash. There wasn’t.
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To measure reputation, the team built the alternative BP out of a weighted average of 15 other brands, including Shell, using data from YouGov’s BrandIndex database, which rates perceptions from positive (+100) to neutral (0) to negative (-100). The real BP dropped more than 50 points below its simulated version immediately after the disaster compared with the counterfactual version. But by 2017, it had stabilised at only 17 points below its imagined disaster-free peer.
A similar approach was used to assess the firm’s stock market performance, this time constructed using a weighted average of 187 companies in the S&P 500 stock market index at the time of the spill. While the real company’s share price dipped dramatically in the first two months after the disaster compared with its synthetic equivalent, there was no significant difference in stock market returns in either one to two years after the spill or two to seven years after.
He says the lesson of this counterfactual exercise is that the stock market can’t be relied on to discipline companies for industrial accidents. “There is a market failure here. We need more regulation so these disasters don’t occur in the future,” he says. The issue is pertinent now, he says, with the rush to more domestic oil and gas production in the wake of Western countries turning away from Russian energy because of the invasion of Ukraine.
BP declined to comment on the new research.
Journal reference: PLoS One, DOI: 10.371/journal.pone.0268743
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