BP sold its stake in TNK-BP to Rosneft, which gives the oil giant additional resources which can be used to cover all of its financial exposure and legal costs arising from the 2010 Gulf of Mexico oil spill. Experts say this will help to keep BP’s total exposure from impairing its financial profile. A statement from the ratings agency Fitch Ratings indicated an upgrade to BP’s debt rating of “A” would require “evidence that its new upstream business strategy is being successfully implemented, or of a better-than-expected settlement with the U.S. Department of Justice.” Regardless of how all of this affects BP’s financial ability to pay all claims, the Justice Department has a duty to maximize the recovery. BP and Rosneft agreed to the sale of BP’s 50-percent stake in TNK-BP for $28 billion in cash and Rosneft shares.
Fitch said that the sale itself – which will swap BP’s stake in TNK-BP for an 18.5-percent stake in Rosneft and around $12.3 billion in cash – is broadly neutral for BP’s rating. That’s because it would not reduce the company’s reserves or production. However, the sale will take BP well beyond its $38 billion target for asset sales, thus increasing its ability to meet potential future issues related to the oil spill. The rating agency said:
We estimate that BP’s total costs arising from the Macondo spill will end up at between $45 billion and $50 billion, with the key remaining uncertainty being the amount it will have to pay to settle with the Department Of Justice.
It was pointed out by Fitch that the rating agency would consider a settlement with the Department of Justice of $15 billion or less as a positive development for the company. Fitch made this observation:
We said in July – when we changed the outlook for BP’s [Issuer Default Rating] to Positive – that a favourable settlement with the DoJ could be supportive of an upgrade to ‘A+’. However, the most likely route to an upgrade would be for BP to also show progress in its 10-point plan to improve its upstream business performance, which was set out in October 2011.
Without getting into the upgrade aspect of the deal with Rosneff and its effect on the claims against BP, I will simply say that BP and all responsible parties should not only pay claims in full, but they should all be severely punished for their very bad conduct. That’s especially true when it comes to BP. When you check the oil giant’s quarterly profits, I believe you will agree that BP can afford to pay whatever amounts it is ordered to pay, whether by settlements or trial.
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