BP moves on

Following completion of safety-related maintenance, production from five wells in the Gulf of Mexico should resume by the end of the year, with output from another two or three wells in the Gulf expected by the end of 2012. In addition, BP's bosses anticipate bringing 17 upstream projects into production by 2014. The profit margins for each barrel of oil produced from these new operations will "be double the average of our existing portfolio," says chief executive Bob Dudley, and that will "significantly boost cash flow". BP's cash pot could also swell over the next couple of years thanks to a 50 per cent rise in its target for selling peripheral assets to $45bn. This could prompt a return to the dividend levels of 2009, or even a share buy-back.

A measure of how effectively BP has beefed-up its safety regime in the wake of the Gulf disaster can be gauged by the recent decision of the US Bureau of Ocean Energy Management to approve BP's first exploration plan for drilling there since the disaster. The approval represents the first step towards BP expanding output in the Gulf, which should eventually be complemented by output from some of the 67 new exploration licences it has been granted elsewhere in the world this year - its biggest number in a decade.

A step towards resolution of BP's legal issues was provided by the recent $4bn settlement paid to BP by Anadarko Petroleum, its partner in the Macondo well. True, the settlement was a third less than BP had expected to receive, but it resolves an issue that had diverted attention away from the underlying value of BP's global assets.

BP has also received $1.2bn from two other out-of-court well settlements from minority partner, MOEX Offshore, and contractor, Weatherford International. But the group's legal disputes with its two main Macondo contractors - Transocean and Halliburton - are likely to drag on even though US federal authorities have cited both these companies for violating oil industry regulations. According to BP, the federal citations make it clear that "contractors, like operators, are responsible for properly conducting their deepwater drilling activities".

The apportioning of blame under these citations could conceivably make it easier for BP to claw back some of the $20bn it has set aside for its restitution fund, although the group's final liabilities in relation to the disaster will only become clear once the extent of any fines levied under the US Clean Water Act are known.

Nevertheless, the level of the Anadarko settlement and the costs incurred by BP thus far suggests that the company may have provided more than enough. And that likelihood is not reflected in its share price. On the day before the disaster, the market value of BP's equity was £121bn. Currently, its market value is £86bn, so the post-Macondo markdown still stands at £36bn. Yet that markdown is £14bn more than the $41bn (£25.3bn) pre-tax charge for the disaster that was in BP's 2010 accounts, minus the settlement payments received thus far from Anadarko and others. This excess £14bn markdown works out at 74p a share. And this admittedly crude valuation takes no account of the rise in oil prices since April 2010, or any funds that might come BP's way from Transocean or Halliburton.