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One of the world’s most expensive cost-saving experiments: this is how one might characterize the oil rig accident that occurred on 20 April, leaving a blotch of oil as big as the Carpathian Basin in the Gulf of Mexico. The current extent of the contamination eclipses many times the Exxon Valdez tanker accident of two decades earlier, which resulted in almosta quarter of a million barrels of crude oil flowing into the ocean along the shores of Alaska. At the same time, the important distinction to be made is that while in the case of tanker accidents the ship’s capacity serves as the natural upper limit to the size of the leak, in the case of deep-sea wells the extent of the contamination is potentially almost limitless.

Based on the data currently known, for the time being one can only guess at the exact nature of the failures and construction faults that may have led – despite ample precautions – to the April disaster, as a consequence of which crude oil continues to pour from the damaged wellhead into the Gulf of Mexico to this day. Opinions in the industry hold that excessive cost-saving measures may partly explain the disproportionately great assumption of risk, although it is also conceivable that this suspicion will only be partially confirmed in future and that negligence may have been at least as great a contributory factor in the events. In anyevent, things do not look good for BP after the emergence of a letter from one of the company’s engineers in which the scarcely elegant phrase “will probably be fine” was usedby way of approval of the less thorough than usual well-capping operations.

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The result of the 15/B auction on 1 July took some market players by surprise. Previously the bond, which pays variable interest twice yearly and matures in 2015, was typically quoted at a price of above 99; indeed, the average price was around 100 at the first auction in March. However, at the latest issue the average price was only 98.06, while the lowest accepted offer was 95.5. The difference between the average price and the lowest accepted offer was unusually large, as was the discrepancy compared with the result of the previous auction.

The time has come for us to price in this bond properly!

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