Deepwater Horizon: Paying for the spill
AS BP makes progress stemming the flow of oil from its blown-out well in the US Gulf, it is also positioning itself financially to deal with the cost of the catastrophe and shore up investor confidence
At the time off writing, the tab for the spill had reached $3.5bn. Projections of the final bill range widely, from $20bn to $70bn.
"The financial consequences of this will undoubtedly be severe," outgoing chief executive Tony Hayward said in June (see p2), "but BP faces its financial responsibilities as a strong company."
BP does have deep pockets. Although its share price has taken a beating, dropping from $62.38 pre-spill to a 14-year low of $26.75, it had recovered to around $36 at press time, giving the company a hefty market capitalisation of almost $113bn. BP reported first-quarter profit of $6bn – more than double profits from the first three months of 2009, which Hayward describes as one of the best years for the company since its merger with Amoco in December 1998.
Still, BP is taking steps to bolster its balance sheet. Chief financial officer Byron Grote told an investor briefing in June: "Even though our business continues to operate extremely well with strong underlying cash flows, we feel it is very important to take a deeply conservative fiscal approach to running our business at the moment."
In June, BP said it would defer dividend payments scheduled for the rest of 2010, but would consider reinstating them in 2011 when its spill liabilities are more fully understood. It also reportedly will cut its capital spending over the next year by several billion dollars.
The company's announced intent to sell $10bn in non-core assets to raise cash to pay spill costs has fuelled speculation about which holdings will go on the market. Asset sale to Apache will raise $7bn (see p26). And further rumoured candidates range from oilfields in Colombia, production ventures in Venezuela and assets in Vietnam and Pakistan, to BP's operations in Alaska and its majority stake in Argentina's second-largest oil producer, Pan American Energy.
In July, BP said it was selling an oil-storage facility and some pipelines to Magellan Midstream Partners for $289m, but negotiations began well before the spill and are not part of the $10bn asset sale.
The company wants to maintain a net-debt ratio between 20% and 30%. With that ratio standing at 23% at the end of the first quarter, the company has some wiggle room. However, it has revealed no plans to take on more debt.
Rumours are also circulating that BP has approached strategic investors about buying into the firm. But the company says only that it has no intention of issuing new shares, but would welcome new investors. Tying up big blocks of stock, however, would help ward off take-over attempts, another area of speculation in the media. Both ExxonMobil and Chevron have been mentioned as possible candidates. Those reports, however, have remained unconfirmed, and analysts say such a merger is unlikely.