Oil-coated vultures circle BP

The doomsayers are gathering to predict that the Gulf of Mexico spill will be the giant killer for the company, at least as we know it now. But does it spell the end?

When the oil settles in the Gulf of Mexico, the company being blamed for one of the worst environmental disasters in US history could be very different from the way it is today.

Some analysts say BP may not even be a going concern. "This situation has now gone far beyond concerns of BP's chief executive Tony Hayward being fired or shareholder dividend payouts being cut. It's got the real smell of death. This could break BP," Dougie Youngson, an oil analyst at the British firm Arbuthnot Securities, says in one of the gloomiest assessments to date. "Given the collapse in the share price and the potential for [the stock] to fall further, we expect that [BP] could become a takeover target, particularly if its operating position in the US becomes untenable."

At the other end of the spectrum Fadel Gheit, the managing director and senior oil analyst at Oppenheimer in New York, thinks the situation offers "a unique opportunity" to risk-hardened investors. "BP can survive this unless costs go above US$100 billion (Dh367.29bn)," Mr Gheit says. "The company is generating $30bn per year in operating cash flow. There is plenty of financial capability going forward to take care of liabilities and clean-up."

The question hanging in the air and accounting for the big range of analyst opinions on BP's future, or lack of one, is whether the company will be hounded from the US by political and public outrage. Few casual observers appreciate the extent to which the once quintessentially British company has become Americanised. BP may have operations on every continent except Antarctica but 31 per cent of its oil and gas reserves and 27 per cent of combined oil and gas production, along with 27 per cent of profits and 39 per cent of revenue from exploration and production, are associated with its US operations.

The company has been the biggest US oil and gas producer for at least the past decade. Last year alone 42 per cent of its worldwide exploration and production costs were incurred in the US. That share represented an injection of nearly $6bn into the US economy, with the US Gulf coast benefitting most. It also employed 8,000 people in its US upstream operations, or 37 per cent of its global upstream workforce.

A map that BP drew up to show the distribution of the major oil and gas developments it expects to bring on stream in the next five years lists no fewer than 11 in the Gulf of Mexico. That is by far the company's biggest geographic concentration of planned upstream investment. Next comes Angola with seven projects, then the North Sea with six. The company has ranked managing some of the world's giant oilfields among its main strategic goals. Of its top six fields, three are in US waters: Atlantis and Thunder Horse in the Gulf of Mexico, and Prudhoe Bay off the north coast of Alaska.

BP's other focal points, with respect to exploration and production, are deepwater operations and global gas production. Although the company has also been active in deep waters off Angola, Egypt and Libya, and still expects to complete a $7bn purchase of mostly Brazilian deepwater assets from the US oil company Devon Energy, unquestionably its most important deepwater operations lie off Texas and Louisiana.

BP also lists the Gulf of Mexico as one of four "high margin" areas in which it operates. The others are Azerbaijan, Angola and the North Sea. The reason for this high concentration of American assets lies in the company's recent history. In 1998, BP acquired Amoco, which at the time was one of the biggest US oil companies, in a deal valued at $48.2bn. "The merger will give us the opportunity to move into the premier league," Lord Browne, then the chief executive of BP, told investors.

"We'll be the largest oil producer in the UK ? and the US. We'll be the largest gas producer in the US. The core of the business will be in the UK and the US." Two years later, BP paid a further $27.6bn for Arco, its former arch-rival in Alaska, shifting its focus even further towards the US. So if BP was banned from the US, it would be very much a disaster for the company. But even that might not be enough to finish it off.

After all, BP would still have access to 18 billion barrels of oil in Iraq's Rumaila oilfield, for which it holds a 20-year development contract with China National Petroleum Company and Iraq's Southern Oil Company. On its books are 3.6 billion barrels of Russian oil reserves, nearly 13 trillion cubic feet of gas reserves in South America and another 6 trillion cu ft of Australasian gas, to list a few highlights.

For comparison, the company's US reserves at the end of last year amounted to 3.1 billion barrels of oil and about 15 trillion cu ft of gas. There are still many countries happy for BP to continue drilling in their territories. One of those is Libya, where BP plans more than $1bn of investment in the next seven years. Last week, Shokri Ghanem, the chairman of Libya's National Oil Company, said the reaction to BP's Gulf of Mexico oil spill was "exaggerated somewhat".

"When you have an air crash you don't stop travel in the whole world," Mr Ghanem told a conference in London, adding that BP would be allowed to continue drilling off Libya's coast. After BP said it would need to sell $10bn of mostly upstream assets to help pay for its Gulf of Mexico disaster, some countries are dreading news that the company may relinquish concessions. Industry sources say Oman is extremely worried, having just received such notification from BG, the British gas company.

Muscat was counting on BP and BG to help it exploit technically challenging "tight gas" reserves as it struggles to alleviate the sultanate's growing gas shortage. An Omani official recently said production from two gasfields under development by BP was expected to start in August. BP lists gas development in Oman among its "major" upstream projects. Even Russia, the world's biggest oil and gas producer and exporter, would be shaken if BP withdrew from its sometimes troubled joint venture in the country.

After handing over responsibility for BP's day-to-day affairs last week to his US lieutenant Bob Dudley, Mr Hayward was said by company sources to be heading to Moscow to soothe fears in the Kremlin. In a sure sign of such concern, the Russian deputy vice president and top energy official Igor Sechin has been quick to state that the Gulf of Mexico spill would not harm the TNK-BP joint venture. [e-mail]