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Announcement:

Moody's: Uncertainty from Macondo weighs on BP's credit profile

Global Credit Research - 25 Feb 2013

London, 25 February 2013 -- Considerable financial uncertainty will continue to weigh on BP plc's credit profile until the size of the ultimate potential financial liabilities arising from the April 2010 Macondo accident and oil spill in the Gulf of Mexico is known, says Moody's in its latest report on BP published today. This is despite the better clarity that has come from a deal last year between BP and many private sector plaintiffs and a recent settlement between the company and the US authorities resolving all criminal charges related to the accident.

The outcome of a two-phase trial, which begins on 25 February in New Orleans , will influence the size of the ultimate financial penalties that BP (A2 stable) will incur. As such, Moody's will closely monitor the progress of the proceedings to assess any credit implications.

The new report, entitled "BP p.l.c.: Despite Progress, Uncertainty Remains Ahead of Macondo Civil Trial", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.

"The trial will provide strong clues as to how Macondo will affect BP from a credit perspective," says Francois Lauras, a Vice President - Senior Credit Officer in Moody's Corporate Finance Group and author of the report. "The trial will first determine who was responsible for the accident -- including the key point on whether BP and other defendants acted with 'gross negligence' -- and apportion liabilities among the defendants, and secondly determine how much oil was spilled."

A finding of gross negligence is the one outcome that would have the most negative impact on BP's liabilities, primarily in the area of Clean Water Act (CWA) penalties. The degree of negligence and the amount of oil spilled will influence the size of potential fines that could be imposed on BP under the CWA and determine the company's exposure to other claims from US states along the Gulf Coast and outstanding claims from individuals and businesses. However, this is likely to be a protracted process, as final rulings after appeals may take years to resolve.

Significantly, this trial will not rule on the amount of the monetary awards to claimants. The ultimate assessment of penalties and damages to be borne by BP and the other defendants will be determined in a second trial at a later date, probably not before 2014.

Moody's estimates that so far BP has spent a total of $37.2 billion pre-tax (equivalent to $26.1 billion after tax) on costs arising from Macondo. The figure includes the $4.5 billion criminal settlement agreed with the US authorities in late 2012 and assumes that BP will spend all of the $20 billion in the oil spill trust compensation fund.

Although BP's financial results weakened in 2012, additional divestment proceeds should allow the company, in the context of its prudent financial policies, to absorb cumulative costs related to Macondo of up to $40 billion after tax, while sustaining credit metrics commensurate with its A2 rating. On that basis, Moody's estimates that BP currently has headroom of around $14 billion after tax credits to cover CWA fines as well as other claims and litigation costs not payable from the trust fund.

Moody's would expect BP's cash flows to strengthen from 2014 onwards as it begins to reap the benefits of the large roster of upstream projects that it is working on, many of which are based in high-margin regions. This would help strengthen the group's credit metrics relative to their weaker positioning expected in 2013.

Subscribers can access this report via this link: http://www.moodys.com/research/BP-plc-Despite-Progress-Uncertainty-Remains-Ahead-of-Macondo-Civil-Credit-Focus--PBC_150504.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

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

David?Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536

Releasing Office:
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

Moody's: Uncertainty from Macondo weighs on BP's credit profile
No Related Data.

 

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