It will be a long time before BP is back to business as usual following the Gulf of Mexico disaster. The UK oil and gas major has just upped its estimate of costs by $7.7 billion to $39.9 billion, in what investors must hope is the second kitchen-sinking exercise following the disaster—albeit the first under new chief executive Bob Dudley. But the hit can’t mask what looks like the makings of BP’s recovery.
The upward revision to the spill cost was twice as big as some analysts had expected—BP blamed delays in capping its leaking well—but the shares still rose on the news. That isn’t so strange. The Gulf of Mexico disaster has already wiped some $60 billion from BP’s market value, while global markets are little changed from when the Macondo well blew out in April. After tax, the hit falls to $27 billion. That number is still probably a best guess. A gross negligence charge for BP would send the bill skyrocketing. Equally, the costs could fall if BP’s partners in the stricken well end up assuming their 35 percent share of the liability.
Spain’s two largest banks have always been fiercely competitive — both within the country’s borders and beyond. The battleground today is the United States. But, Santander and BBVA are following radically different strategies to crack this giant market.
It’s too soon to tell who will come out on top, and neither lender has covered itself in glory so far. But, if Santander’s talks with Buffalo-based M&T Bank lead to a deal, it will be much closer than BBVA to clinching its American dream.
BP says it has the financial firepower to tackle the Gulf of Mexico spill. But its resources are finite and the well is still spewing. Investors are wondering if the money could stop flowing before the oil does. The numbers are reassuring.
There is still huge uncertainty as to how much the ongoing disaster will cost. But BP’s agreement to suspend dividends and put $20 billion in escrow for damages helps clarify the potential impact on its cash position. Crucially, the liability is spread over time. Even on a gloomy scenario, it looks like the UK oil major would avoid a crunch.
BP investors seem to have hit the panic button. The $76 billion drop in the UK oil major’s market value since the start of the Gulf of Mexico disaster looks out of proportion to the cost of the clean-up the bill. But then again, maybe not.
Of the total fall, $10 billion reflects the 13.5 percent drop in world stock markets since the April 20 explosion. That leaves a $67 billion hit to market capitalization.
The cost of the clean-up should account for one big chunk of that, with Credit Suisse putting BP’s share of the tab to as much as $12 billion, taking Exxon Mobil’s Valdez spill in 1989 as benchmark and including $4 billion of fines. Then there is the cost of paying damages to those whose livelihoods have been wrecked. That could easily cost another $12 billion. In theory, BP is on the hook for just 65 percent, but assume, for the sake of pessimism, that it pays for it all.
Crisis control is an art, as BP knows all too well. The UK oil and gas major is sparing nothing in dealing with the fatal explosion on a Gulf of Mexico oil rig. Tony Hayward, the chief executive, has deployed 32 ships, two rigs, five airplanes and over 1,000 people. That may seem excessive for a relatively small spill, estimated at 1,000 barrels a day, but too much is better than too little.
Mr. Hayward is clearly worried about BP’s reputation, which had been badly damaged when he took the job three years ago. In both a 2005 explosion in the company’s Texas City refinery and problems in an Alaskan pipeline, BP was directly responsible and partly at fault.
Oil price bulls and bears have both had their triumphs in recent history. The price of crude rose to $147 a barrel in July of 2008 only to plummet to $33 a barrel a few months later. It swung past $82 a barrel this week because of a cold snap, and is up 18 percent since mid-December. But barring heightened tension in the Middle East, oil looks likely to slide in the short term.
Demand remains relatively subdued, in spite of the massive stimulus applied to the global economy. This is especially true in OECD countries and the United States, the largest consumer of energy. American crude oil inventories actually rose by 1.3 million barrels last week when temperatures plummeted, according to the latest figures by the Department of Energy. Elsewhere in the OECD, oil inventories have fallen, but only slightly, according to the International Energy Agency. They are still high, at nearly 60 days of demand.