BP Seals Macondo Well Permanently

BP plc ( BP - Analyst Report ) has finally plugged the Macondo well. This announcement came yesterday after $9.5 billion (through September 17) in expenditures and five months of continuous effort.

Tony Hayward, the outgoing chief executive officer of BP group, termed this as a significant milestone in response to the Deepwater Horizon tragedy. He said this well no longer presents a threat to the Gulf of Mexico.

Though the well is now completely sealed, BP still has a lot of cleanup work to be completed in the coming days. In addition, the spill cost the company hundreds of lawsuits that could be distractions for years.

We are also concerned about the company’s future exposure on the U.S. offshore business as the House of Representatives might prevent BP from obtaining future offshore drilling leases. Under such a situation, BP’s overall operation will be significantly hampered as the company has nearly doubled its output from the U.S., which now accounts for an approximately 27% of the group’s total production.

Earlier this month, BP released its internal investigation report on the Deepwater Horizon explosion. Apart from blaming itself for the accident, the company also holds others such as rig owner Transocean Ltd. ( RIG - Analyst Report ) and cement contractor Halliburton Co. ( HAL - Analyst Report ) responsible.

The distressed U.K. major has experienced the worst times in its history following this accident. Its market value was halved within two months and its dividend was also suspended. BP had reported a $17 billion loss in the second quarter, one of the biggest in the U.K. corporate history.

The oil leak was stopped in mid-July, but the effect of this news had no material impact on the stock performance as the price remained essentially flat over this period. It now remains to be seen how the stock performs over the coming days following this good news. Until then, we prefer to stay on sidelines and maintain our Neutral recommendation with the Zacks #3 Rank (Hold).