B&E’s Steven Philip Warner talks to various global oil & climate experts from the likes of Goldman Sachs, Credit Suisse, Standard & Poor’s, Argus Research, JBC Energy & Varda Group to find out what awaits BP’s fate? Will BP, which as recently as two months back was the second most valued oil major in the world, disappear?
There are more uncertain words doing the rounds about BP’s present state. In explanation, Simon Redmond, Oil Analyst, Standard & Poor’s tells B&E that the prime reason for this is the erratic manner in which information was concealed and disclosed. That made this incident a PR disaster for BP, which could have a bearing on the company’s future as well. For starters, S&P has already given it a “negative CreditWatch” tag. In other words, sell the stock before it plummets further. “BP’s production growth could be hampered as a result of negative business and regulatory perceptions. S&P is lowering the long and short-term corporate credit ratings on BP to ‘A/A-1’ and keeping BP on CreditWatch negative. Despite claims that some 90% of the spill could eventually be collected on a continuing basis, the leakage remains significant. The likely range of direct costs at $4 billion to $6 billion are manageable for BP. However, the pollution could result in fines that are a multiple of this range,” says Redmond. Hayward has been blamed for not revealing the true state of damage. Initially, the company had handed over a document the Congress, claiming the leakage to be 5,000 barrels per day (bpd). Official estimates of the Macondo oil spill, by the US Coast Guard, put the figure between 35,000-60,000 bpd on June 16, 2010. “Since Deepwater horizon sunk on April 22, BP’s handling of the issue has not been perfect. Possibly the biggest failure in the post accident handling was that BP was not particularly forthcoming about the volume of oil spill, with different assessments over time,” says Vienna-based Johannes Benigni, MD of energy consulting firm JBC Energy to B&E. In one line – there are other fines, penalties, and litigations that could add significantly to the costs likely to be borne by BP over the next several years.
Economic loss is another quarter of worry for most affected areas by the oil spill. Here is an instance - Alabama, Louisiana, Michigan, Florida, which are the four states affected by the spill at present, are forecasted to lose about $14.4 billion in revenues from tourism and fishing over the next four years. While $8.925 billion of the local industry revenue loss will be tourism-related, for the fishing industry, this figure stands at $5.466 billion. Even the oil companies that operate in these four states are forecasted to lose $34.873 billion in topline by April 2013.
The spill has been an embarrassment for BP. It forced Hayward to pledge in public that he will not rest until he “makes this right” and that BP and the entire industry will emerge from the crisis stronger and smarter. IBC Energy’s MD Benigni says, “Without question, BP’s future looks much dimmer now than two months back. BP will still be around in 2020 and beyond, but probably smaller.” We disagree and estimates by industry watchers double our take. While a June 2010 report by Credit Suisse forecasts BP’s net profit to again rise above the $20 billion mark in FY2012 (estimate of $21.3 billion), another report by Goldman Sachs forecasts the figure to touch $22.6 billion in FY2010 and to reach $29.0 billion by FY2012. Good news as far as earnings are concerned.
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