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Why BP will survive massive gulf oil spill
ASSOCIATED PRESS
Photo
In this July 13, 2010 file photo, demonstrators from the group 'Vuvuzelas for BP', blow vuvuzelas during a protest across the street from the BP headquarters in central London. As the Gulf oil spill gushed out of control this summer, BP's financial liabilities expanded so rapidly that experts wondered if the company had drilled its last well. Only months later, though, the British oil giant has pulled itself back from the brink.
ASSOCIATED PRESS
Photo
FILE - In this Nov. 2, 2010 file photo, BP PLC Chief Executive Bob Dudley speaks at a news conference at their headquarters in London. As the Gulf oil spill gushed out of control this summer, BP's financial liabilities expanded so rapidly that experts wondered if the company had drilled its last well. Only months later, though, the British oil giant has pulled itself back from the brink.
Associated Press
NEW YORK
As the Gulf oil spill gushed out of control, BP’s financial liabilities seemed big enough to sink the company. No more.
Cleanup, government fines, lawsuits, legal fees and damage claims will likely exceed the $40 billion that BP has publicly estimated, according to an Associated Press analysis. But they’ll be far below the highest estimates made over the summer by legal experts and prominent Wall Street banks, such as Goldman Sachs, which said costs could near $200 billion.
BP will survive the worst oil spill in U.S. history for several key reasons: it has little debt; its global businesses are forecast to generate $26 billion next year in cash flow from operations; the environmental impact of the spill isn’t as bad as feared; and the government seems unlikely to ban BP from Gulf drilling. To bolster its finances, BP has cut its dividend, issued debt and sold more than $21 billion in assets.
“It could have been a lot worse,” says Tyler Priest, a University of Houston petroleum historian.. “BP is going to come back from this.”
Influential investors appear to agree. According to Thomson Reuters, 23 firms with $1 billion or more invested in the stock market, including BlackRock Investment Management, Managed Account Advisors and Rydex Security Global Investors, more than doubled their holdings of BP stock from July through September.
At $44.11, BP’s stock price has risen 63 percent from its low of $27.02 on June 25. It’s still down 27 percent from its close of $60.48 on April 20, the day of the spill. The well was capped on July 15.
The AP analysis shows the company is likely to face $38 billion to $60 billion in spill-related costs. A settlement with the federal government could reduce that amount, while a successful class-action lawsuit could add billions more.
The analysis includes:
—The $10.7 billion that BP already has paid to plug its well, clean up the spilled oil and pay damage claims and other costs.
—A $20 billion fund that BP set up in August for individuals and private businesses that were affected by the spill. The fund, known as the Gulf Coast Claims Facility, pays for environmental damage, personal injury, cleanup and lost earnings. The fund so far has paid $2.7 billion to address nearly 168,000 claims.
—Fines: The Justice Department is suing BP for violating the Clean Water Act. Fines are based on how much oil was spilled. The government’s estimate of 4.9 million barrels means BP faces between $5.4 billion and $21.1 billion in fines.