Oil Spill Settlement Boosts BP

| About: BP p.l.c. (BP)

By Angus Robertson

After the failure of the Rosneft deal things are looking up for BP as Mitsui & Co’s MOEX unit agreed to pay $1.1 billion toward the clean-up of the Macondo oil spill.

Reuters reports that the settlement is likely the first of a series of settlements between BP and its partners before the February 2012 trial date set for hundreds of spill-related lawsuits, said David A. Logan, dean of Roger Williams University School of Law in Bristol, Rhode Island.

“It’s a signal that the parties are very unlikely to let this play out all the way to trial,” said Williams, who has been closely following the BP litigation. “Corporate leaders want predictability, and litigation is uncontrollable and unpredictable.”

Societe Generale analyst Irene Himona said that the Mitsui settlement shows that a BP partner has agreed to share both the blame and the costs of the April 2010 oil rig explosion.

It is very significant because clearly now it means that BP can try and ensure that everybody else who is involved will also meet their obligations.

On the basis of the Mitsui settlement, Anadarko (NYSE:APC) could be liable for almost $2.7 billion, toward these elements of the total cost, based on its 25 percent share of the well, Reuters notes. That is less than some investors had expected.

“BP’s other partner in the Macondo licence is likely to come under pressure to settle as well now,” Richard Griffith, a London-based analyst at Evolution Securities Ltd., wrote in an e-mailed report, according to Bloomberg. “Critically Mitsui has joined BP in recognizing that the accident was the consequence of a number risks and actions by multiple parties.”

But “In our view the value of the settlement should be seen as disappointing” because it’s about a half of the amount claimed by BP, Oswald Clint, a London-based analyst at Sanford C. Bernstein & Co., said in an e-mailed report. “Recent comments from Anadarko’s CEO suggested the company would be willing to reach a settlement provided all parties were involved. With Mitsui making the first step, the chances of Anadarko reaching a settlement have increased.”

Fiona Maharg-Bravo at Reuters Breakingviews notes that Mitsui is now siding with BP in concluding that Transocean (NYSE:RIG) was at least partly to blame for the accident. “If BP can obtain just a fraction of the $40 billion claim it has filed against Transocean, plus settle with Halliburton (NYSE:HAL) and Cameron (NYSE:CAM), which were involved in well construction and rig equipment respectively, then its bill will rapidly shrink.”

The Houston Business Journal reports that analysts at Jefferies & Co. Inc. said the settlement suggested BP was “getting close to settling the entire legal process.”

“If this settlement is swiftly followed by an agreement with Anadarko, BP should be able to begin to put the whole Macondo saga behind it,” Jefferies said, maintaining a Hold rating on BP.

Investec upgraded BP to Buy, while RBC Capital Markets started coverage of the stock with an Outperform rating. Investec’s Stuart Joyner called for a “radical, full demerger of BP” to close the acute discount on Investec’s view of fair value.

He suggested that BP could be of interest to rival oil firms at its current discount: “We think the Russians, Chinese or Indians will look hard at the sub-6 times multiple.”

Shares of BP finished up 2.7 percent in London.