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Global Credit Research - 24 Feb 2012
London, 24 February 2012 -- BP's A2/Prime-1 ratings are likely to withstand cumulative
costs related to the Macondo well accident of up to USD40 billion (net
of tax), says Moody's Investors Service in an Analysis report
published today. The MDL 2179 proceedings, scheduled to begin
on 27 February 2012, will be instrumental in determining the magnitude
of the total costs BP will ultimately have to bear as a result of the
explosion of the Deepwater Horizon oil rig in April 2010, which
resulted in 11 fatalities and the Gulf of Mexico oil spill from the Macondo
well.
"Considerable uncertainty remains regarding potential additional
calls on BP's cash flow ahead of the proceedings," says
Francois Lauras, a Vice President -- Senior Credit
Officer in Moody's Corporate Finance Group and author of the report.
"However, we believe that BP's robust underlying cash
flow, its prudent financial policies and the likely additional divestment
proceeds should allow the company to absorb cumulative costs related to
the Macondo well blowout of up to USD40 billion whilst sustaining credit
metrics commensurate with its A2/Prime-1 ratings."
Moody's notes that, should BP be found grossly negligent,
Clean Water Act (CWA) penalties could be five times greater than the USD3.5
billion currently set aside by the group to cover this cost, while
punitive damages would be more likely to be awarded to plaintiffs in the
course of the civil litigation. Also, the group may have
to pay hefty fines as a result of the ongoing criminal inquiry by the
US Department of Justice.
To date, the impact on BP's financial profile of the fatal
2010 Deepwater Horizon explosion and ensuing oil spill in the Gulf of
Mexico has been relatively contained, as the costs from the accident
have been fully offset by proceeds raised from the sale of non-core
assets and a significant cut in shareholders' remuneration.
Official investigations point to multiple factors causing the Macondo
well blowout and shared responsibilities between the parties including
BP, its partners and its contractors. However, as the
designated operator in charge of the project, BP is regarded as
having taken a central role in the accident.
The MDL 2179 limitation and liability trial should help determine who
was to blame for the Macondo accident, decide whether BP and any
defendant acted with gross negligence, and apportion liabilities
between the various parties involved. However, Moody's
notes that this is likely to be a protracted process, as final rulings
after appeals may take years to resolve.
Moody's new Analysis on BP, entitled "BP still faces
significant uncertainty as Macondo trial gets under way",
is available on www.moodys.com.
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Francois Lauras
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Olivier Beroud
Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
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SUBSCRIBERS: 44 20 7772 5454
Moody's: BP's A2/P-1 ratings likely to withstand up to USD40 billion of Macondo-related costs
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