We're Positive on Cameron's Settlement with BP

It could very well turn out that BP's shares have been oversold

Stephen Simko, CFA 16 December, 2011 | 5:13PM
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BP (BP.) and Cameron International (CAM) announced a $250 million settlement ahead of next year's Macondo trial. We think this is a smart move for Cameron, as it removes a degree of uncertainty over the company's ultimate liability. However, the settlement only covers cleanup costs associated with the spill, not potential civil, criminal, or administrative fines or penalties. Given that Cameron expects insurance to cover $170 million, we're making no changes to our fair value estimate. Of the key parties involved in the Deepwater Horizon incident, only Halliburton (HAL) and Transocean (RIG) have failed to reach an agreement with BP thus far. While we view this settlement as additional incentive for the two holdouts to settle ahead of the trial, we won't be surprised if they opt instead to take their chances in court, in hopes that their contractual indemnification by BP holds up.

The above is a Morningstar Analyst Note, usually available only to Morningstar Premium subscribers. Read the full Morningstar Research report on BP, including fair value estimate, here.

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Stephen Simko, CFA  is a senior stock analyst at Morningstar.

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