What’s new
■ Companies and regulators blamed for spill
■ Sued with partners for $21bn
■ Asset sales gather pace
The US National Oil Spill Commission has blamed management failure on the part of BP and partners Halliburton and Transocean as the "single overarching failure" that caused the blowout of the Macondo well in the Gulf of Mexico last April. However, the commission also criticised government regulators for lacking the authority, resources and technical expertise to prevent the disaster.
The US government announced in December its intention to sue for $21bn (£13.6bn) although analysts at Evolution Securities believe that unless gross negligence can be proven against BP, which looks less likely given the commission's findings, any fines will likely be constrained to $4-5bn. BP plans to sell up to $30bn of assets by the end of 2011 to help fund its liabilities and is comfortably on schedule, with the recent sale of interests in Pakistan adding to sale contracts that already totalled some $21bn.
Even as BP's liabilities have begun to crystalise, it received more unwelcome news from a more northerly clime, as reports emerged that an oil leak at a pumping station at Alaska's North Slope will force the company to temporarily shut down up to 95 per cent of the flow on the Trans-Alaska Pipeline System, which carries around 630,000 barrels a day from the huge Prudhoe Bay field, constituting 11.7 per cent of the US’s daily output of 5.61m barrels.
Evolution Securities says...
Buy. We have argued for some time that it would be hard to prove gross negligence against BP in which case even if BP assumes 100 per cent liability for Macondo the impact would be $25-30bn and not $45-50bn as the valuation of the company continues to imply. The report may provide grounds for BP to claw back monies from licence partners and possibly Transocean and Halliburton. While the findings of the US National Oil Spill Commission is damning it does in or view underpin out target price of 510p. Expect 2011 EPS of 129¢.
Standard & Poor's says...
Hold. We believe more criminal charges are set to follow. Yet all these lawsuits will take years to resolve and require proof of gross negligence which we believe will be almost impossible to prove here and in our view unwarranted. We have a discounted cash flow-derived 12-month target price of 610p that assumes BP will continue to operate in the US. However, we expect the shares to trade below our estimate of their underlying value until the US government's position on BP's US operations is determined.
