BP’s liabilities have sky-rocketed in tandem with estimates of the growing scale of the Gulf of Mexico oil spill, as analysts believe the company may eventually pay out more than US$4 billion.
The British oil giant’s costs are tied to new estimates that put the amount of oil spilled at between 1 million barrels (160 million liters) and 2 million barrels so far, double the previous estimate, Wall Street experts said on Friday.
“It is more than just the environmental damage,” David Kotok of Cumberland Advisors said.
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“The dispute as to how many barrels of oil are flowing daily into the Gulf is a dispute over money,” he said.
“The money issue is about the fines that BP is destined to pay. They are assessed on a per-barrel rate,” Kotok said.
US government data on Thursday suggested the oil’s flow — before a containment system was put in place last week — was between 25,000 barrels and 30,000 barrels a day and could be upwards of 40,000 barrels a day.
If negligence is proven, fines could be as high as US$4,300 per barrel — an amount that could triple if there is a criminal fine, Kotok said.
The cost to BP so far would stand at between US$4.3 billion and US$8.6 billion, if the latest flow and cost estimates prove correct.
“And we are still looking at three more months before the well is expected to be sealed,” he said.
Because of the soaring liability, BP will likely bow to US pressure and suspend dividend payments, due on July 27, British media reports said on Friday.
The Times newspaper said BP was preparing to place the second-quarter dividend money — an expected US$1.7 billion — in an escrow account in an attempt to ease political pressure on the firm.
BP directors are to meet tomorrow to discuss the payments, the BBC reported, although the decision was not expected to be announced at least until company bosses meet US President Barack Obama at the White House on Wednesday.
BP CEO Tony Hayward told the Wall Street Journal that the discussions were ongoing.
“We are considering all options on the dividend. But no decision has been made,” he said.
Top US lawmaker Nancy Pelosi urged BP not to pay dividends and echoed pleas from Obama not to shortchange those affected by the oil disaster.
The final price tag is still a guess because it is still unclear how much oil is flowing from the well, how long the spill will last and how far the oil will travel.
The firm’s share price has fallen more than 40 percent since the rig exploded on April 20, prompting speculation about bankruptcy and a takeover bid.
Still, much of the cost of that cleanup effort has already been factored into the company’s share price, according to Goldman Sachs, suggesting the worst of BP’s financial storm may have passed.
The New York-based investment bank estimated that the market is discounting around US$33 billion of net damages from the spill.
This is in the “in the upper end of our estimated liability range,” Goldman told investors on Friday.
Fellow Wall Street firm Standard and Poor’s estimated BP will have to pay US$6 billion in damages as long as the well is plugged within 12 months.
Goldman estimated that a “conservative mid-case scenario” would see BP pay US$36 billion in damages, “with a reasonable worst-case scenario of US$60 billion to US$70 billion.”
Kotok was even more pessimistic: “If [oil] ... gets it into the Gulf Stream, we will go to our disaster case and this event will become a US$100 billion nightmare.”
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