Vessels monitor a oil burn in the area of the Deepwater Horizon disaster on the Gulf of Mexico, Tuesday, July 13, 2010. BP officials have placed a containment cap over the leak in hopes that the flow of oil will be diminished. (AP Photo/Dave Martin)
President Barack Obama makes a statement after being briefed on the BP oil spill relief efforts in the Gulf Coast region, Friday, June 4, 2010, at Louis Armstrong International New Orleans Airport in Kenner, La. (AP Photo/Charles Dharapak)
Protesters gather outside of the BP offices in San Francisco on Wednesday, May 12, 2010 to demonstrate against the Gulf oil rig disaster. (AP Photo/Marcio Jose Sanchez)
This image from video provided by BP PLC early Sunday morning, June 13, 2010 shows oil continuing to pour out at the site of the Deepwater Horizon oil well in the Gulf of Mexico. The Coast Guard has demanded that BP step up its efforts to contain the oil gushing into the Gulf of Mexico by the end of the weekend, telling the British oil giant that its slow pace in stopping the spill is becoming increasingly alarming as the disaster fouled the coastline in ugly new ways Saturday. (AP Photo/BP PLC) NO SALES
This image from video provided by BP PLC early Sunday morning, June 20, 2010 shows oil continuing to gush millions of gallons a day, from the broken wellhead, at the site of the Deepwater Horizon oil well in the Gulf of Mexico. (AP Photo/BP PLC) NO SALES
GULF SHORES, AL - JUNE 08: Workers pick up oil patches and tar that washed up on the beach at Bon Secour National Wildlife Refuge from the Deepwater Horizon oil spill in the Gulf of Mexico on June 8, 2010 in Gulf Shores, Alabama. Early reports indicate that BP's latest plan to stem the flow of oil from the site of the Deepwater Horizon incident may be having some success. (Photo by Joe Raedle/Getty Images)
Oil floats in the Gulf of Mexico near Orange Beach, Alabama, U.S., on Friday, June 18, 2010. The BP Plc oil spill, which began when the leased Transocean Deepwater Horizon oil rig exploded on April 20, is gushing as much as 60,000 barrels of oil a day into the Gulf of Mexico, the government said. Photographer: Kari Goodnough/Bloomberg
Oil cleanup workers hired by BP pick up oil on the beach in Gulf Shores, Ala., Friday, July 2, 2010. Oil from the Deepwater Horizon incident is expected to come ashore over the July 4th weekend. (AP Photo/Dave Martin)
In this image taken from video provided by BP PLC at 18:17 CDT, a new containment cap, top, is lowered over the broken wellhead at the site of the Deepwater Horizon oil spill in the Gulf of Mexico, Monday, July 12, 2010. Deep-sea robots swarmed around BP's ruptured oil well Monday in a delicately choreographed effort to attach the tighter-fitting cap that could finally stop crude from gushing into the Gulf of Mexico nearly three months into the crisis. (AP Photo/BP PLC) NO SALES
This combo made from images taken from video provided by BP PLC shows oil flowing from two of three valves on the new 75-ton cap atop the site of the Deepwater Horizon oil spill in the Gulf of Mexico at 17:04 CDT Wednesday, July 14, 2010, left, and the top of the cap at 17:56 CDT on Thursday, July 15, minutes after the flow of oil was choked off. BP vice president Kent Wells said the oil stopped flowing into the water at 14:25 CDT after engineers gradually dialed back the amount of crude escaping through the last of three vents in the cap, an 18-foot-high metal stack of pipes and valves.(AP Photo/BP PLC) NO SALES
The view from an approaching helicopter shows the armada of drillships and other vessels surrounding the site of the blown out BP well in the Gulf of Mexico about 40 miles off the coast of Louisiana. Credit Brett Clanton / Chronicle
Oil gushes from a valve atop the failed blowout preventer (BOP) at the BP Deepwater Horizon oil spill site in the Gulf of Mexico off the coast of Louisiana, U.S., in an image captured by the Skandi remotely operated underwater vehicle (ROV) camera at 7:35 a.m. Central Standard Time (CST) on Tuesday, July 13, 2010. BP Plc installed a new cap on its leaking Gulf of Mexico oil well and will start testing today whether this will stop the gusher while work continues on a permanent plug. Source: BP Plc via Bloomberg
EDITOR'S NOTE: EDITORIAL USE ONLY. NO SALES.
GULF OF MEXICO, LA - JULY 27: (EDITORS NOTE: Distortion caused by heat.) Ships assist in clean up and containment near the source of the BP Deepwater Horizon oil spill July 27, 2010 in the Gulf of Mexico off the coast of Louisiana. Work continues to put a permanent plug on the well which has leaked an estimated three to five million barrels of oil. (Photo by Chris Graythen/Getty Images)
Hairdresser Karen Jackson wears a t-shirt that reads "We've been BPeed on!" on the front of the shirt and "Gulf Oil Disaster 2010-??" on the back Saturday, July 3, 2010, in Orange Beach, Ala. Jackson says she is worried about the effect the spill is having on her community and what will happen if local business continues to falter. "I would hate to have to leave this place. We love it here." She said her business is way off what it should be for the season, "down here we make all of our money in the summer," she says. Her husband's work as an electrician has dried up she says, so he has signed on to work cleanup for BP. ( Smiley N. Pool / Houston Chronicle )
A driver rolls down the highway with messages such as "$ave the Gulf Coa$t" and "Tony Hayward C.E. O of B.P. Give us out Live Back" while driving Sunday, June 27, 2010, in Pensacola, Florida. ( Smiley N. Pool / Houston Chronicle )
This still image from a live BP video feed shows a view from a submersible while checking the integrity of the well head on August 3, 2010 in the Gulf of Mexico. BP prepared Tuesday to plug the worst oil leak in history, although the Gulf of Mexico region will be counting the environmental and economic costs for years, perhaps decades, to come. Already delayed by a week due to Tropical Storm Bonnie, the long-awaited "static kill" was put off again at the last-minute when a leak was discovered on Monday in the cap that has been sealing the runaway well since July 15. US spill chief Thad Allen said the leak had been stopped overnight and that the operation to ram in heavy drilling fluids, known as mud, would commence as soon as "injectivity tests" had given the procedure the all-clear. AFP PHOTO / BP == RESTRICTED TO EDITORIAL USE / NO SALES / NO MARKETING / NO ADVERTISING CAMPAIGN == (Photo credit should read HO/AFP/Getty Images)(Photo Credit should Read /AFP/Getty Images)
In this image taken from video provided by BP PLC at 12:23 a.m. EDT, Saturday Sept. 4, 2010 Aug. 3, 2010 shows the blowout preventer that failed to stop oil from spewing into the Gulf of Mexico being raised to the surface. The blowout preventer wasn't expected to reach the surface until Saturday, at which point government investigators will take possession of it. (AP Photo/BP PLC) NO SALES
DAUPHIN ISLAND, AL. | JULY 4, 2010 : A cleanup worker, wearing a protective coverall and carrying a small scoop, punctuates an otherwise typical holiday beach scene as patrols the beach looking for tar balls on Independence Day. While exact numbers are elusive, tourist business along the Gulf Coast all reported feeling the sting of lost income from a noticeable dip in tourism this summer following the Deepwater Horizon spill.
GULF OF MEXICO | JUNE 26, 2010 : Streaks of oil are seen on the surface of the water near the site of the Deepwater Horizon spill in the Gulf of Mexico. The amount of oil spilled, and what happened to the oil remains in debate, but in August, the Department of Energy and United States Geological Survey announced, that it estimated a total of 4.9 million barrels of oil had been released from the BP Deepwater Horizon well.
GRAND ISLE, LA. | JULY 15, 2010 : Oil containment boom floats just off the pier as fishermen cast lines near the bridge leading to the island after sun sets on the first full day of fishing after a ban on sport fishing was lifted. Commercial fishing remained closed, but happy recreational fishermen flocked to the water on a beautiful evening. Most were BP contractors working on the cleanup. One was Bobby Walker of Houma, La., who said he had been coming to the island to fish for over 30 years and praised the great fishing and natural beauty of the island. "But who would have ever thought I would be here all summer working on the oil spill."
BP Plc (BP/) investors said progress toward a settlement with the victims of the Deepwater Horizon disaster signals a share-price rebound, closing the $44 billion gap with the company’s value before the worst U.S. oil spill.
BP rose to a 13-month high above 500 pence in London trading yesterday after the trial to apportion blame for the disaster was delayed by a week to allow time to reach an accord with lawyers representing businesses and residents. The stock may gain a further 15 percent, presuming the company keeps payments for the spill within $10 billion of the $37 billion it has already set aside in costs, said broker Brewin Dolphin Ltd.
“They can probably go a bit above their provision and still get a positive response,” said Colin McLean, chief executive officer at SVM Asset Management, where he oversees 700 million pounds ($1.1 billion) of securities, including BP shares. “The market just wants clarity. There’s lots of pressure to get a deal.”
BP fell 0.3 percent to 500.3 pence as of 8:16 a.m. in London today.
Reaching a settlement with thousands of claimants before the trial begins would be a milestone in resolving the legal disputes arising from the spill and allow Chief Executive Officer Bob Dudley to concentrate on reviving BP’s operations in the Gulf of Mexico, where the London-based oil company was the biggest producer before the accident.
On Feb. 26, the day before hearings were due to start in New Orleans, BP and a plaintiffs’ committee said they wanted more time to reach a deal. That settlement would use funds already set aside for victims, according to people with knowledge of the matter. BP is also negotiating with the U.S. Justice Department over fines under the Clean Water Act, where it’s provisioned $3.5 billion. The federal government is also considering criminal charges.
“The shares are being held back by very significant uncertainties,” James Bevan, who oversees $10 billion as chief investment officer of CCLA Investment Management Ltd. in London and holds BP, said in an interview on Bloomberg Television. “The shares will recover significantly if we get good news in terms of an early settlement.”
BP spokesman Robert Wine declined to comment on a possible settlement.
Shares in the London-based company gained 9 percent this year as BP raised its dividend and reported fourth-quarter earnings that beat analyst estimates. Royal Dutch Shell Plc (RDSA), Europe’s biggest oil company, has lost 2.3 percent this year.
BP is still down 24 percent since the day the accident started on April 23, 2010, when it traded at 658 pence, meaning the spill has erased 27.5 billion pounds ($44 billion) of BP’s market value.
BP has already reached agreements with some partners and contractors in the Macondo well. The $20 billion fund set up for victims has paid out more than $6 billion. Dudley said this month BP is open to settlements with the U.S., five states, and business and individuals affected by the spill.
“If a deal were to come out that would cost BP about $45 billion, I suspect BP would take it and shares would get to 580 pence,” said Iain Armstrong, an analyst at Brewin Dolphin in London. “It wouldn’t go back to the price pre-Macondo, but the current price would become the base.”
Dudley is targeting $38 billion in asset sales to shore up BP’s balance sheet and says the company will focus on profitability rather than volume in production. The company agreed yesterday to sell natural-gas holdings in Kansas to Linn Energy LLC (LINE) for $1.2 billion.
Dudley said Feb. 7 that cash flow will increase 50 percent by 2014 from 2011 levels. Oil prices have gained about 30 percent since the start of the spill.
BP would be able to absorb as much as $40 billion of costs related to the spill and still maintain a stable outlook on its A2 debt rating, which is five levels above the lowest investment grade, Moody’s Investors Service said Feb. 24.
The board raised BP’s dividend by 14 percent on Feb. 7 for the first time since the disaster. The payout to shareholders was suspended for three quarters after the spill and reinstated one year ago at half the previous level.
Some analysts caution that settlements could be large enough that BP shares fall. The cost may reach as much as $25 billion in addition to payments already made, making the total cost of the spill higher than provisioned, according to Morgan Stanley & Co. analyst Martijn Rats. Based on BP’s free cash flow, that should value the shares at about 457 pence, he said.
If BP’s costs are below that level, the company may be able to raise its dividend at a faster pace, valuing the shares at about 652 pence, Rats said in a note dated Feb. 23.
U.S. District Judge Carl Barbier is overseeing court proceedings in New Orleans, consolidating thousands of individual claims bought against BP. If the trial goes ahead, he will apportion blame for the explosion of the Deepwater Horizon rig and the spill, which according to the U.S. was more than 4 million barrels of crude. Without a jury, Barbier is set to determine whether BP can get a share of more than $26 billion it has already spent from others involved with the Macondo well.
The U.S. government has sued BP for violations of federal pollution laws. Non-government plaintiffs include fishermen, shrimpers, restaurants, hotels, workers and business and property owners along the coast.
BP has reached settlements with well partners Anadarko Petroleum Corp. (APC) and Mitsui & Co. (8031)’s MOEX Offshore 2007, as well as contractors Cameron International Corp. (CAM) and M-I Swaco. It hasn’t reached agreements with Transocean Ltd. (RIG), the owner of the rig, or Halliburton Co. (HAL), which provided cement for the well.
“With $20 billion to $30 billion extra Macondo cost over and above the provisioned amounted appeared to be discounted in the shares, we believe there is potential for a re-rating for BP,” Alejandro Demichelis, an analyst at Bank of America Merrill Lynch, said in a note.