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Global Credit Research - 01 Oct 2013
New York, October 01, 2013 -- BP plc can tolerate a moderate penalty related to the 2010 Macondo oil
spill without compromising its credit quality, Moody's Investors
Service says in a new report, "BP Still Risks Big Claims as
Macondo Proceedings Enter Second Phase." But a severe penalty
resulting from a finding of gross negligence would change the equation,
as PSC settlement costs keep mounting.
Phase 2 of the trial to determine limitation and liability begins 30 September.
It will be critical in determining how much money the parties involved
will have to pay in penalties, though actual amounts will be decided
in a separate, later trial.
"BP can tolerate about $40 billion in penalties, after
taxes, under its A2, Prime-1 ratings,"
says Vice President -- Senior Credit Officer, Francois Lauras.
"A ruling in line with the company's current $3.5
billion provision would leave some headroom to absorb other charges,
including PSC settlement costs from payouts awarded for business economic
loss claims, which ultimately depend on the interpretation of the
Economic and Property Damages Settlement Agreement." A US
appeals court is due to decide on this in the coming weeks.
Four weeks have been scheduled for phase 2 of the case. In the
first phase, the court sought to determine blame for the Deepwater
Horizon blowout and apportion liabilities among the defendants.
Moody's believes all rulings are likely to be deferred until after
phase 2, leaving the key question -- whether BP and other defendants
acted with gross negligence or engaged in willful misconduct -- unanswered
in the meantime.
Other defendants in the case include Transocean Inc., Halliburton
Company and Anadarko Petroleum Corp. Transocean, which owned
the Deepwater Horizon rig, is exposed to sizable fines and penalties.
"Indemnifications will protect Transocean from some Macondo liabilities,"
says Vice President -- Senior Credit Officer, Stuart Miller,
"but other items could ultimately cost the company billions of dollars
Macondo also continues to pose liabilities for Halliburton, which
provided cementing services on the well. While Halliburton contends
that its service contract with BP fully indemnifies it in the Macondo
proceedings, evolving multi-district litigation and other
lawsuits and investigations could lead to further financial charges.
Anadarko Petroleum Corp. enters phase 2 of the trail with the least
trepidation of the parties still involved. Though a broad indemnification
agreement with BP does not protect the company against penalties under
the US Clean Water Act, it can probably manage these without putting
its ratings at risk.
Moody's research subscribers can access this report at https://www.moodys.com/research/Integrated-Oil-BP-Still-Risks-Big-Claims-as-Macondo-Proceedings--PBC_158923.
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VP - Senior Credit Officer
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Moody's: BP risks large claims as Macondo proceedings continue
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