BP ’s future remains an open question

NEW YORK — The future of BP PLC has shifted in recent days from a death-watch discussion to a debate about how valuable the British oil giant will be after it finishes paying for the worst offshore oil spill in U.S. history.

NEW YORK — The future of BP PLC has shifted in recent days from a death-watch discussion to a debate about how valuable the British oil giant will be after it finishes paying for the worst offshore oil spill in U.S. history.

BP gained temporary control of its broken well in the Gulf of Mexico on Thursday and is counting on shutting it off permanently within weeks. Its shares have regained more than a quarter of the value lost in the wake of the April 20 explosion on the Deepwater Horizon drilling rig. Talk of a possible bankruptcy or takeover of the company has mostly faded.

But the company still faces the daunting task of paying huge government fines and royalty payments, cleanup costs, damage claims and legal expenses for years. Analysts estimate BP’s final tab for the Gulf oil spill will be anywhere from US$50 billion to $100 billion.

Many analysts feel BP can cover the costs if they’re spread out over years or even decades. But others don’t like the uncertainty. They note that the asset sales needed to offset at least part of those costs will likely make it a smaller company with reduced cash flow.

“We still don’t have any way of gauging” how much BP could eventually spend on the spill, Macquarie Research analyst Jason Gammel said. “We’re certainly not buying the stock.”

Others are more encouraged. “People are relatively optimistic about the situation for the first time since this started,” said Dougie Youngson, an analyst with Arbuthnot Securities in London.

BP shares traded in the U.S. were worth $60.48 on April 20, hours before the explosion of the drilling rig triggered the oil spill. They then spiraled downward to as low as $26.75 during trading on June 28. That slide wiped out $105 billion in market capitalization.

The stock began to rebound this month as details emerged about the possible sale of $10 billion or more in assets to help cover BP’s liabilities. The temporary capping of the well helped send the stock 9 per cent higher last week to $37.10.

BP promised the Obama administration it will set aside $20 billion over four years to pay spill-related claims along the Gulf and has spent $3.5 billion so far. But beyond that, BP says “it is too early to quantify other potential costs and liabilities associated with the incident.”

Those include:

— Possible civil fines of up to $1,000 for every barrel of oil spilled. With the government’s estimate of the spill ranging from 2.15 million to 4.3 million barrels, the fine could be from $2.15 billion to $4.3 billion.

— The government also wants BP to pay royalties at a rate of 18.75 per cent on the oil it collected from the well. BP put that figure at 826,800 barrels. However, the company could also owe royalties on the oil spillled into the Gulf if investigators determine that the spill was the result of BP’s negligence.

— BP has vowed to stay in the Gulf until the oil is cleaned up, which will take years. It’s hired thousands of people to clean beaches and marshes and skim oil off the water. It also has to pay cleanup costs incurred by the government.

— Anadarko Petroleum Corp. and MOEX LLC, BP’s partners in the blown-out well, are contractually obligated to pay 25 per cent and 10 per cent of the costs, respectively. But they have refused to pay BP’s initial bills totalling $388 million because they claim BP was negligent in its management of the well.

— The biggest wild card is legal liabilities. Lawsuits have been filed on behalf of workers who died or were injured in the blast, as well as local businessmen, shareholders and employees.

Analysts estimate BP’s operations will generate about $30 billion in cash this year if oil prices hold steady. BP recently cut back capital spending to around $18 billion, so that leaves about $12 billion in free cash. Normally, dividends totalling $10.6 billion would come out of that, but BP suspended dividend payments in June.

BP also has another $5 billion in cash, plus a $15 billion credit line. Adding in potential asset sales, that means BP will have as much as $30 billion available for paying penalties and other liabilities.

The company’s debt level stood at about $32.15 billion at March 31. It has talked to banks about borrowing more money if needed.

Even if BP sells some assets, it’s likely to remain one of the largest non-government-owned oil companies in the world. Just how big? The high-end estimate of around 4 million barrels spilled in the Gulf amounts to no more than one day’s output from BP’s vast global operations.

If BP can continue to get between $70 and $75 a barrel for the oil it produces, analysts believe its cash flow will remain sufficient to cover its Gulf liabilities. That doesn’t mean people pressing claims against BP have to root for higher prices, but the reality is that a sharp drop in oil could put them at risk.

West Texas Intermediate crude, the light oil that is the benchmark for global prices, is trading at around $76 a barrel. Brent crude, which is found in the North Sea among other areas, is priced around $75.40.

The company’s financial condition will become clearer when BP reports results for the second quarter on July 27. There’s a chance it will announce the sale of assets at that time.

Published reports have suggested the company is talking with Apache Corp. about selling a stake in the Prudhoe Bay oil field in Alaska, but BP has declined to disclose specifics.

Youngson, the Arbuthnot analyst, said a sale to Apache would fit with BP’s plan to sell assets that don’t affect the company’s long-term growth, a strategy it had before the Gulf spill. It also would make sense politically, he added.

Another candidate for a sale is BP’s 60 per cent stake in Argentine Pan American, an Argentine oil and gas producer that also has operations in Bolivia and Chile. Analysts estimate the stake is worth about $9 billion.

Oppenheimer & Co. analyst Fadel Gheit said BP doesn’t need to sell assets now, but the company is digging in for years of damage claims. “Eventually they know they’re going to have to sell something,” he said. “It’s not if, but when.”

——

Wardell reported from London. AP Reporter Jennifer Quinn contributed to this report.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

A health-care worker prepares a dose of the Pfizer-BioNTech COVID-19 vaccine at a clinic in Toronto on Thursday, January 7, 2021. THE CANADIAN PRESS/Nathan Denette
Alberta vaccine rollout expanding to front-line health-care workers

More than 240,000 eligible health-care workers can begin booking vaccine appointments starting… Continue reading

File photo
The Red Deer Rebels will have three new assistant coaches when the WHL regular season starts on Friday. Brad Flynn (left), will be on the bench alongside fellow assistant Ryan Colville (right) head coach Brent Sutter (middle). (Photo by BYRON HACKETT/Advocate Staff)
Sutter steps down as Red Deer Rebels head coach

Red Deer Rebels Owner, GM and head coach Brent Sutter has stepped… Continue reading

Premier Jason Kenney announced $200 million more money that will benefit seniors living in continuing care on Wednesday. (photography by Chris Schwarz/Government of Alberta)
Alberta’s in-school rapid screening test program expanding

Alberta’s in-school rapid screening test program will expand to as many as… Continue reading

Parents and students learned Tuesday what the coming school year will look like. It's pretty much back to business as usual, said Education Minister Adriana LaGrange. School precautions include frequent cleaning, keeping students in the same groups where possible, planning the school day to allow for physical distancing and staying home when sick. (photography by Chris Schwarz/Government of Alberta)
Alberta’s largest school board says no to United Conservative draft school curriculum

CALGARY — Alberta’s largest school board says it will not use the… Continue reading

Red Deer-South MLA Jason Stephan is among those who have signed an open letter criticizing the government’s return to stricter health measures. (Advocate file photo).
Updated: Kenney tells UCP caucus COVID-19 dissent OK, breaking health rules means expulsion

15 MLAs released letter on Wednesday critical of new health restrictions

Prime Minister Justin Trudeau watches a speaker appear by videoconference during a news conference in Ottawa, Friday, April 9, 2021. Grassroots Liberals have overwhelmingly endorsed a resolution calling on the federal government to develop and implement a universal basic income — despite Prime Minister Justin Trudeau's apparent lack of enthusiasm for the idea. THE CANADIAN PRESS/Adrian Wyld
Trudeau winds up Liberal convention with election campaign-style speech

OTTAWA — Justin Trudeau wound up a three-day Liberal convention Saturday with… Continue reading

Team Canada skip Brendan Bottcher makes a shot against Italy at the Men's World Curling Championships in Calgary, Alta., Tuesday, April 6, 2021.THE CANADIAN PRESS/Jeff McIntosh
Men’s world curling championship in Calgary in COVID limbo

CALGARY — The men’s world curling championship in Calgary remained suspended Saturday… Continue reading

Pipes intended for construction of the Keystone XL pipeline are shown in Gascoyne, N.D. on Wednesday April 22, 2015. THE CANADIAN PRESS/Alex Panetta
Non-profit Quebec law centre to aid environmental group targeted by Alberta oil firm

QUEBEC — The Quebec Environmental Law Centre is coming to the aid… Continue reading

Conservative leader Erin O'Toole holds a press conference on Parliament Hill in Ottawa on Tuesday, April 6, 2020. Top Tory leaders of past and present will speak with supporters today about what a conservative economic recovery from COVID-19 could look like. THE CANADIAN PRESS/Sean Kilpatrick
Conservatives cite empathy, relationships as ways to help expand their movement

OTTAWA — Conservatives should show empathy with Black residents who say they’ve… Continue reading

NDP Leader John Horgan celebrates his election win in the British Columbia provincial election in downtown Vancouver, B.C., Saturday, Oct. 24, 2020. New Democrats are reconvening for the second day of a three-day policy convention as they look to push past the glitches of the virtual event's opening sessions and rally around keynote speaker John Horgan. THE CANADIAN PRESS/Jonathan Hayward
New Democrats reconvene as hiccups, frustrations plague national policy convention

OTTAWA — New Democrats reconvened Saturday for the second day of a… Continue reading

FILE - In this Monday, Oct. 23, 2017 file photo, President Donald Trump speaks during a joint statement with Singapore's Prime Minister Lee Hsien Loong in the Rose Garden of the White House in Washington. Former President Donald Trump plans to affirm his commitment to the Republican Party — and raise the possibility that someone else will be the GOP's next presidential nominee — in a closed-door speech to donors Saturday night, April 10, 2021. (AP Photo/Evan Vucci, File)
Trump in 2024? He says only that ‘a Republican’ will win

PALM BEACH, Fla. — Former President Donald Trump plans to affirm his… Continue reading

A cruise ship sits docked waiting for passengers to be evacuated in Kingstown, on the eastern Caribbean island of St. Vincent, Friday, April 9, 2021 due to the eruption of La Soufriere volcano. (AP Photo/Orvil Samuel)
Ash-covered St. Vincent braces for more volcanic eruptions

KINGSTOWN, St. Vincent — People who ignored an initial warning to evacuate… Continue reading

Owner of 4 Point Taekwondo Kevin Mejia holds a board as organizer and martial artist Kevin Olsen breaks it in Edmonton on Friday, April 9, 2021. One hundred martial artists from around the world, will be breaking a board for an event called "Break for a Breakthrough." The idea is for martial artists to unite and re-engage with the arts because they may have drifted away or lost enthusiasm as a result of the pandemic. THE CANADIAN PRESS/Jason Franson
Break for a Breakthrough: Canadian hosts international martial arts demonstration

EDMONTON — Whether he’s breaking a wooden board, a clay tile, cement… Continue reading

Most Read