1. What are the costs to other stakeholders in society beyond those that Reuters included? How would these costs be estimated?
2. Has the cost of lost reputation been included by Reuters? If no, how could it be estimated?
3. Since there are so many uncertainties involved in analyses such as Reuters presented, are analyses like this useful? Why or why not?
4. Calculate the discounted value of BP’s estimated lost production for an appropriate time horizon using reasonable assumptions for discount rate and price of a barrel of oil. Justify your assumptions.
5. Why were BP’s early estimates so low? After all, as Reuter’s reports, BP had experience with two other recent cases.
One of the world’s largest oil spills began on April 20, 2010, in BP’s Deepwater Horizon/Macondo well in the Gulf of Mexico. Although the world did not take significant notice until the next day, an estimated 62,000 barrel so foil and gas escaped into the Gulf for most of the next 95 days until the well was capped on July 27th. Damage to the Gulf Coast fishery, tourism, and quality of life was catastrophic. At first, BP estimated that the cost of cleanup alone would be $3–6 billion1 and set aside a claims fund of $20 billion.2 On July 27th BP set aside $32.2 billion3to settle claims for loss of income, and cleanup and other costs. Later BP decided to raise their estimate to $40 billion, but even that may prove not to be enough.