BP Estimates Remaining Material Deepwater Liabilities -- Update
July 14 2016 - 3:09PM
Dow Jones News
By Michael Amon
BP PLC on Thursday said its quarterly profits would take another
$5.2 billion hit from the deadly Gulf of Mexico oil spill,
estimating a total bill of $61.6 billion for one of the worst
environmental disasters in American history.
The British oil giant said the pretax charge likely would be the
last related to the Deepwater Horizon accident to have a "material
impact" on its financial performance, potentially bringing to an
end six years of litigation, fines and cleanup costs that humbled
one of the world's largest energy companies.
Until now, BP had said it was impossible to estimate the
ultimate corporate cost of the April 2010 blowout of the Macondo
well, which killed 11 workers and released 3 million barrels of oil
into the Gulf of Mexico over almost three months. The spill upended
the Gulf fishing industry, decimated the region's wildlife and
prompted a massive cleanup effort.
BP's costs are much larger than the fines levied on individual
banks involved in the subprime mortgage crisis or the 1989
Exxon-Valdez spill, which cost the company then known as Exxon $4.3
billion.
The company's announcement Thursday came about a month after it
resolved one of the last pieces of litigation arising from spill,
agreeing to pay investors $175 million to settle allegations over
its disclosure of business risks. That came on top of a roughly $20
billion agreement with state and federal governments -- among the
largest corporate penalties in U.S. history -- to resolve all state
and federal claims relating to the spill.
Brian Gilvary, BP's chief financial officer, said the company
had made "significant progress" over the past few months in
resolving the thicket of litigation related to the spill.
"Today we can estimate all the material liabilities remaining
from the incident," Mr. Gilvary said in a news release.
"Importantly, we have a clear plan for managing these costs and it
provides our investors with certainty going forward."
BP has struggled to pivot from a disaster that has drained the
company of resources for six years and forced it to retrench into a
period of cost savings and downsizing long before oil prices began
a steep descent in 2014. The company has sold more than $40 billion
in assets since the spill.
The charge will affect BP's profits for the second quarter,
which will be announced on July 26. After tax, the charge will
amount to about $2.5 billion, and the company estimates the total
post-tax bill to be $44 billion.
The relentless fallout from the massive oil spill has dragged on
the company's efforts to forge a new strategy. BP executives have
long been able to blame the Macondo disaster for poor financial
performance but will now be expected soon to put forward a plan to
recharge its ambitions.
The company's Deepwater Horizon costs will become a fixed cost
of the company's business rather than a lingering uncertainty.
Payment of the federal settlement is scheduled to begin later
this year, with an average of around $1.1 billion annually over a
period of 18 years. The company has said asset sales will cover the
cost of settlement payments.
Write to Michael Amon at michael.amon@wsj.com
(END) Dow Jones Newswires
July 14, 2016 14:54 ET (18:54 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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