Analysis of Environmental and Economic Damages from British Petroleum’s Deepwater Horizon Oil Spill

25 Pages Posted: 5 Aug 2010 Last revised: 27 Apr 2014

Lawrence C. Smith Jr.

Louisiana Tech University (Retired)

Murphy Smith

Murray State University - Accounting Department

Paul Ashcroft

Missouri State University

Abstract

This study examines the environmental and economic damages caused by British Petroleum’s Deepwater Horizon oil spill in the spring and summer of 2010. The process of oil exploration and production is extremely challenging, offering significant rewards that are offset by equally significant risks. The world’s demand for energy is constantly growing, thereby leading to extraordinary efforts and gigantic investments by energy companies to find new supplies of oil. The $365 million Deepwater Horizon was an offshore drilling unit designed to operate in waters as deep as 8,000 feet and to drill down 30,000 feet. The Horizon was drilling an exploratory well about 41 miles off the coast of Louisiana, when on April 20 an explosion killed 11 workers and began the release of massive amounts of oil into the Gulf. The well was eventually capped on July 15. Total damages to BP, the environment, and the US gulf coast economy are estimated to be $36.9 billion. The damages are attributed to three major factors: (1) human error and equipment failure at BP’s Deepwater Horizon offshore drilling unit, (2) failure of the US government to assign, and in some cases to permit, resources to assist with the containment of the oil spill, and (3) misinformation disseminated by the news media regarding the amount and location of oil pollution in the water and on the beaches of the Gulf of Mexico.

Keywords: British Petroleum, Deepwater Horizon oil spill, environmental liability, environmental damages, economic analysis

JEL Classification: F23, G34, K32, Q3, Q4

Suggested Citation

Smith, Lawrence C. and Smith, Murphy and Ashcroft, Paul, Analysis of Environmental and Economic Damages from British Petroleum’s Deepwater Horizon Oil Spill. Albany Law Review, Vol. 74, No. 1, 2011: 563-585. Available at SSRN: https://ssrn.com/abstract=1653078 or http://dx.doi.org/10.2139/ssrn.1653078

Lawrence C. Smith Jr.

Louisiana Tech University (Retired) ( email )

P.O. Box 3178
Ruston, LA 71272
United States

Murphy Smith (Contact Author)

Murray State University - Accounting Department ( email )

Murray, KY 42071-3314
United States
270-809-4181 (Phone)

Paul Ashcroft

Missouri State University ( email )

901 South National Avenue
Springfield, MO 65897
United States

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