By Selina Williams
LONDON--BP PLC's (BP.LN) $4.5 billion settlement with the U.S.
Department of Justice and the Securities and Exchange Commission
over criminal charges and claims arising from the 2010 Deepwater
Horizon disaster are credit positive for the company because they
clarify the level of the criminal penalties, Moody's said
Monday.
Furthermore, the fact that BP has accepted criminal
responsibility on the grounds of "negligence" rather than "gross
negligence" eliminates the threat of a possible indictment by the
DoJ and should put BP in a better position to defend itself in the
civil courts, Moody's said. The plea also reduces the chances of BP
being barred from U.S. government contracts.
But although the settlement removes some uncertainty for BP, it
isn't the end of its legal issues.
Civil claims, including those arising under the Clean Water Act,
are still pending and the DoJ has said it is determined to prove
BP's gross negligence in the civil courts.
"This could raise the amount of Clean Water Act fines to more
than $20 billion compared with the $3.5 billion BP has currently
provided for in its accounts," said Francois Lauras, vice president
and lead analyst for BP at Moody's.
Last week, BP agreed to plead guilty to felony charges and pay
$4.5 billion in penalties, including $1.26 billion in criminal
fines, stemming from the Deepwater Horizon disaster in the Gulf of
Mexico that killed 11 workers and unleashed the worst offshore oil
spill in U.S. history.
Moody's said that BP's commitment to pay the fines over a
six-year period to 2017 is "manageable" given BP's cash flow
generating capacity and liquidity position, which should be further
supported by recently announced divestments, including the sale of
its 50% stake in TNK-BP.
Moody's estimated BP's total pre-tax cash outflow related to
Macondo at $37 billion, or $27 billion after tax credits. This
total includes the agreed DoJ settlement and the final installment
recently paid into the $20 billion Gulf Coast compensation trust
fund.
BP should be able to absorb cumulative costs of up to around $40
billion after tax without any impact on its rating, the agency
said. On that basis, Moody's estimated that BP has headroom of
around $13 billion to cover Clean Water Act fines and Natural
Resource Damages claims.
Write to Selina Williams at selina.williams@wsj.com
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