Following widespread and understandable concern regarding the environmental disaster unfolding in the Gulf of Mexico, members of the Rathbone Greenbank Investments team held a teleconference with BP in the last week.

Our links with BP have been forged over the oil sands resolutions process. The scramble for deepwater assets touches on many of the same themes - as demand for energy coupled with the declining productivity of 'easy oil' leads companies to embrace even greater environmental trade offs in the pursuit of oil and gas reserves. Both the oil sands and deepwater exploration carry significant risks and impacts - although in the case of oil sands, the environmental damage is more predictable and built in to the industry.

Following the Texas City disaster in 2005 and the subsequent pipeline leaks in Alaska in 2006, we have questioned BP's reputation as a leader on sustainable development issues. The incidents in the Gulf of Mexico must lead to further questioning of their reputation.

Our engagement with BP saw this theme explored - as we asked how the company plans to respond to the widespread criticism it is receiving. The company feels that its primary focus must be containment and clean-up, and that rapid and comprehensive dealing with such issues is the first step in rehabilitation.

Many are asking exactly who is to blame for the incident; the situation is more complex than often portrayed by the media, as representatives from four distinct corporate bodies were present on the Horizon rig. BP as the operator of the well must, in legal terms, take full responsibility for containment and clean-up, but the group has earmarked seven distinct potential causes of the incident for further investigation. Only a full investigation will reveal the causes, and hence where fault lies. According to the company, it remains too early to tell where the final finger of blame will point – at BP, Transocean (the operator of the rig) or the manufacturer of failed safety equipment.

BP has since announced that, over and above its financial duties owed under the 1990 Oil Pollution Act, it will donate the net revenue from the oil recovered from the well to a new wildlife fund to create, restore, improve and protect wildlife habitat along the coastline of Louisiana, Mississippi, Alabama, and Florida. This is of some small comfort to the affected communities, but is an indication of the company’s willingness to make amends for the spill, beyond its specific legal responsibilities.

BP expects wide knock-on effects for the industry. The specifics will depend on the exact nature of the failings that caused the well blow-out, but stricter regulation in one form or another will doubtless follow, according to the company. There may well be implications for operators in deepwater assets in other jurisdictions – namely Brazil and Angola. Indeed, Norway has recently imposed a moratorium on new deepwater exploration on the Norwegian continental shelf until the findings of the investigation into the Horizon spill are announced.

With the final ‘end’ to the spill likely to be postponed until the success of the relief well in August, the story will run and run. Even then, BP will face years of litigation, and a large fine from regulators. In order to promote transparency over the costs of the containment and clean-up, BP has hived-off the dedicated response team into a separate entity within BP. This should help concerned investors get a better sense of the impact of the disaster on future reporting. How BP responds while it waits for the relief wells to reach the right depth will be critical for its future survival.