Tuesday, June 15, 2010

. BP could face maximum civil penalties of $1,100 per barrel of oil spilled, rising to a maximum of $4,300 per barrel spilled if BP were to be proved negligent

By James Herron Of DOW JONES NEWSWIRES LONDON (Dow Jones)--BP PLC (BP) shares closed almost 4% lower Tuesday after Fitch Ratings downgraded its long-term issuer default rating to just above junk as potential up front costs from the oil spill in Gulf of Mexico escalated and the company faced criticism from fellow oil majors at a Congressional hearing. The market initially shrugged off Fitch's announcement, despite the severity of the six-notch cut in BP's rating to BBB from AA. However, the company's shares fell as much as 5.1% Tuesday afternoon and closed down 3.8%, or 13 pence, at 342p. The FTSE 100 index closed up less than 1%. BP's shares have almost halved since the April 20 explosion aboard the Deepwater Horizon drilling rig that killed 11 workers and lead to the spill. "The scale of today's rating action has been partly driven by the increased risk that the balance between long-term and near-term cost payments may now be skewed much more heavily towards the near-term than previously anticipated," Fitch said. A number of Senate Democrats, including Senate Majority Leader Harry Reid (D, Nev.), demanded Monday that BP deposit $20 billion into an escrow account to cover future cleanup and compensation costs. The figure is at the high end of analysts' estimates of the ultimate liability. ING analyst Jason Kenney estimated that BP's full liability, including future litigation costs, will be around $7 billion. BP Monday said it had spent $1.6 billion on containment, cleanup and compensation operations in the Gulf of Mexico so far. The company does not break down that figure, but Kenney estimates that two-thirds of the money has been spent on the complex offshore operations to contain the spill, such as the containment dome, the top kill and the lower marine riser package that currently is capturing about 15,000 barrels of oil a day. "They are probably going through the most expensive phase now ... the mobilization of people and the mobilization of kit offshore," he said. The cost of insuring BP debt, meanwhile, leaped higher following Fitch's downgrade. At 1045 GMT, the five-year credit default swap spread was at 475 basis points, 85 basis points wider on the day and 25 basis points wider following the downgrade, according to credit information firm, Markit. This means it now costs an average of $475,000 a year to insure $10 million of BP debt against default for five years, $85,000 more than at market close Monday. Fitch said the rating cut also was prompted by the increase of the top-end spill estimate to 40,000 barrels a day, from 25,000 barrels a day previously, because it "materially increases BP's exposure to Justice Department fines payable in the near- to medium-term," it said. BP could face maximum civil penalties of $1,100 per barrel of oil spilled, rising to a maximum of $4,300 per barrel spilled if BP were to be proved negligent. Assuming oil continues to leak from BP's well until August, Fitch estimated BP's share of these maximum penalties at $2 billion and $8 billion, respectively. Separately, BP's peers in the oil industry sought to draw a line between their operations and the Deepwater Horizon disaster in testimony to the House Energy and Commerce subcommittee. "When you properly design wells for the range of risk anticipated," then "tragic incidents like the one we are witnessing in the Gulf of Mexico today should not occur," said Exxon Mobil Corp. (XOM) Chief Executive Rex Tillerson. "There were clearly a lot of indications of problems in the well going on for some period of time...why they weren't dealt with differently I don't know," he said. If Exxon Mobil had been drilling BP's Macondo well, "there would have been a different well design...a different cement formulation," and any of his drilling teams would have made different decisions to those taken by BP, Tillerson said. Chevron Corp. (CVX) Chief Executive John Watson also said his company would have used a different well casing design than that used on BP's Macondo well. The testimony comes less than 24 hours after the House Energy and Commerce Committee disclosed new information that suggested that BP officials took shortcuts out of concern about costs. The panel wrote BP Chief Executive Tony Hayward, who is to testify on Capitol Hill on Thursday, to expect tough questions about BP's decisions in the days and hours before the catastrophic explosion. -By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317; james.herron@dowjones.com (Ainsley Thomas, Siobhan Hughes and Tennille Tracy contributed to this article.) Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/nae/al?rnd=uPISDq3EDp4R1cUHwmqBoA%3D%3D. You can use this link on the day this article is published and the following day. (END) Dow Jones Newswires 06-15-10 1237ET Copyright (c) 2010 Dow Jones & Company, Inc. 12:37 061510

1 comment:

  1. just which of the big oil companies would have done things differently? Hindsight is a great gift!

    Did You Know?
    BP engineers alerted federal regulators at the Minerals Management Service that they were having difficulty controlling the Macondo well (Deepwater Horizon) six weeks before the disaster, according to e- mails released by the Energy and Commerce Committee.

    “I don’t think this would have happened on Exxon’s watch,” Tom Bower, author of “The Squeeze: Oil, Money and Greed in the 21st Century,” said in a June 11 Bloomberg Television interview. “They’d be much more careful and much more conscious of the need to supervise subcontractors.”

    WELL excuse me your sainted Exxon....... and Chevron and ConocoPhillips.

    Let’s just take a look at a few of your past misdemeanours, and then we can consider again – if the moratorium on deepwater drilling should be lifted, and place it all firmly back into your nice clean hands!