BP 'facing £15bn loss' over Gulf of Mexico oil spill
BP chief executive Tony Hayward insists company will 'bounce back' as analysts forecast slump in share price
The Gulf of Mexico oil spill disaster is likely to cost BP $23bn (£15bn) and its shares can be expected to lag behind those of its competitors by 5% for the "lasting" future, analysts warned today.
More than $9bn will come from reputational damage as a result of the Deepwater Horizon oil spill while the total costs are likely to drive up its net equity to debt ratio to 35%, much higher than its peers, according to Barclays Capital.
The assessment came as BP chief executive Tony Hayward insisted the company would "bounce back" from the setback though he could not give a timescale for when the flow of oil would be halted.
BP has seen $25bn wiped off its share price since the scale of the Deepwater Horizon rig explosion and the resulting environmental damage became clear. But some analysts have started to argued the share sell-off is overdone.
Barclays took a different tack, saying "we subjectively estimate that the accident might result in a lasting 5% discount for BP's shares relative to its peers". The investment bank analysts estimate that the actual clean-up will probably take BP another 10 months, with a total bill of $1bn. The cost of containment is likely to be a further $700m.
Tougher drilling regulations in the aftermath of the spill are likely to wipe a further $6bn off expected long-term value of BP because its production growth rate is likely to be significantly impeded. The biggest bill will come from reputational damage, say Barclays, but the analysts still think the company will be able to keep up its promised dividend payments.
Shares in BP were steady at the close today at 568p but had been hit earlier in the week when ratings agency Moody's changed the outlook for BP to negative, in a threat to its credit status. Moody's said the decision "reflects considerable uncertainty associated with the financial liabilities and clean-up costs that BP may incur as a result of the oil spill in the Gulf of Mexico".
In an interview for BBC Radio's Today programme, Hayward put the blame for the accident firmly on Transocean, the rig operator hired by BP to drill a well now spewing out more than 5,000 barrels a day from deep under the ocean: "That is a piece of equipment owned and operated by Transocean, maintained by Transocean; they are absolutely accountable for its safety and its reliability and they report to the regulatory authority for its safety." BP accepted total responsibility for the resulting oil spill which is threatening the tourist and fishing industries of the US southern States.
While Hayward said relations between the firm and US federal authorities were "extraordinarily good" and he was "absolutely confident" BP would bounce back, Barclays estimated the oil company could face 100,000 claims at $100,000 each.
The spill claims are currently capped by legislation at $75m – a legacy of the Exxon Valdez tanker grounding – but Congressional leaders are already talking about raising this to $10bn. Barclays also uses this larger figure then whittles it down to $6.5bn on the basis that BP owns 65% of the well, with other stakes in the hands of local firms Anadarko and Halliburton.
It has emerged that the UK safety regulator had criticised Transocean in 2005 and 2006 over blow-out prevention equipment which did the same task as the gear that is believed to have failed two weeks ago in the US Gulf. The Health and Safety Executive issued Transocean with an improvement notice in 2006, criticising the testing of a so-called blow out preventer (BOP).
"The multi-purpose tool used in blow-out preventer pressure testing was not so constructed as to be suitable for the purpose for which it was provided: and failed in service, exposing persons to risks that endangered their safety."
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