Yet another challenge for BP has come in the form of statements made late Friday by the firm's 25% partner in the Macondo well, Anadarko Petroleum. Anadarko's assertions of gross negligence or willful misconduct by BP during the drilling of the Macondo well, if proved, could make BP responsible for co-owners' share of damages under the joint operating agreement. This could subject BP to 100% of oil spill damages and not just its 65% share.
This could be significant, as we now estimate oil spill costs ranging from $3 billion to $8 billion with another $4 billion-$10 billion for environmental cleanup costs. This would be in addition to the $20 billion claims fund announced last week. We also think civil penalties could range anywhere from $4 billion to $46 billion, depending on the amount of oil determined to have spilled into the Gulf and whether BP demonstrated gross negligence. Anadarko recognises its obligations under federal law related to the spill but contends that BP should cover all of the costs. We believe Anadarko's statements add another layer of uncertainty for BP, which may take years to resolve through the court system.
Meanwhile, BP's decision Friday to shift day-to-day oil spill responsibilities from CEO Tony Hayward to managing director Bob Dudley may facilitate the firm's efforts, given Dudley's experience in the Gulf Coast. It may also help BP address our central concern about the oil spill's potential impact on BP's future projects, as it may free up Tony Hayward to focus on easing concerns and securing business outside the United States.
BP's agreement to set aside $20 billion to cover oil-spill-related settlement claims gives us some visibility as to how the company plans to meet a portion of the billions of dollars of near-term costs related to the spill. We consider this one step forward in a lengthy, multistep process. As noted in our earlier note, our central concern remains BP's longer-term exposure to potential regulatory fines, civil penalties, and operating constraints. Because of this agreement, BP's board of directors has opted to suspend at least three quarters of dividend payments, freeing up roughly $8 billion. BP will also reduce capital spending by $2 billion-$3 billion this year and next and will increase planned asset sales to $10 billion over the next year. This amount plus operating cash flow plus borrowing capacity will help BP face potential civil or criminal fines and penalties.
Morningstar has a fair value estimate of 458p per share for BP and a 'very high' uncertainty rating. Read more here.
