BP: How good can it get for BP. Signs that the BP is close to halting the flow from its leaking Gulf of Mexico well have helped the shares rise more than a third since touching a 14-year low in late June. The financial impact of this disaster is getting a bit easier to quantify.
The acute phase of this disaster could be over within a month at the latest when relief wells are completed on schedule. But the beginning of the end could come as early as this week, if a new cap being placed on the leak proves successful in capturing 100 per cent of the flow and diverting it to barges on the surface. This device may also give more accurate assessments of the flow rate from the well.
The best case scenario now would be that the flow stops by July 16. Taking the top official estimates for leakage rates, BP would then have released about 3.4 million of barrels into the ocean, of which around 750,000 have been collected. The cost of the clean-up operation, currently at $3.5 billion, might conceivably come in at under $6 billion. Fines under the Clean Water Act, at $4,300 per barrel split, would be $11.3 billion.
Then there would be claims for damages. BP has committed to fund an escrow with $20 billion for this purpose, and it remains prudent to assume that every dollar in this account will find a determined claimant. Tot it up, assume BP pays the full cost in spite of the fact that its partners may also be liable, and the total bill would be $37 billion, or $29 billion after applying tax deductibility to the non-fine elements. This would cause no strain on BP’s liquidity. BP will generate $30 billion of cash this year. It is on track to sell $10 billion of assets, possibly to US rival Apache, and has $20 billion of cash or committed facilities in place.
Since the well blew, BP has lost roughly $49 billion of market capitalisation in excess of what is attributable to the fall in global equity markets. But until the well is actually capped, the costs could still spiral, and there remain questions about BP's future in the United States, and about its management. The saga isn’t over yet.
