BP flounders after six notch downgrade by Fitch

(Update) Fitch adds its name to those saying BP will suspend quarterly dividend payments as the group's chief executive comes under fire for cost-cutting at its Deepwater Horizon well.

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by Deborah Hyde on Jun 15, 2010 at 13:28

BP flounders after six notch downgrade by Fitch

BP shares were under pressure again in afternoon deals after credit ratings agency Fitch sounded the alarm on the oil giant's near-term finances and downgraded its credit rating by six notches.

At 1.01pm, BP shares were down 1.2p, or 0.34%, to 354.35p - having fallen more than 9% yesterday.

Fitch now rates BP just two notches above 'junk' status. The agency said the new higher estimates of the size of the Gulf of Mexico spill will materially increase the risk of fines from the US Justice Department, and that the US government's calls to keep money in an escrow account will affect BP's fundamental financial flexibility.

'The increased skewing of potential costs to the near-term is compounded by the limitations the severely adverse market reaction towards BP in recent weeks will pose to the company in accessing the full range of capital markets,' Fitch said.

While US politicians have been saying BP should put $20 billion aside to pay claims, Fitch points out BP has $5 billion of available cash, $5.25 billion of undrawn committed bank lines and $5.25 billion of committed stand-by bank lines.

Analysts at Fitch said they would be surprised if BP did not suspend quarterly cash dividend payments until the operational and financial impact of the incident is clearer.

But they said BP is one of the world's most profitable industrial companies overall, with substantial embedded value, and high levels of flexibility in selectively managing its asset portfolio, all of which are characteristics that are supportive of continued access to bank financing.

Tomorrow, BP's board will meet with President Obama and it is widely expected it will find out then how much money it is expected to put aside and whether it can still afford to pay a dividend if the US president pushes ahead with plans to force the group to keep cash in reserve.

BP has hired Blackstone, Goldman Sachs and Credit Suisse to help manage its liabilities, which some suggest adds to mounting evidence BP does not currently have enough cash available to it to meet those demands, keep investing in its own business and pay a dividend.

In the UK, investors have been buying BP in the belief that it is approaching the stage where a cap is put on the liabilities.

However if Obama himself puts the bill as high as $20 billion in his meeting with BP executives this week it looks certain to force the oil major to halt its current planned dividend pay-out.

There are also mounting worries that the US government will call a halt on operations in the Gulf of Mexico and BP may be forced to sell some assets which would see it falling behind its peers in terms of future growth.

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5 comments so far. Why not have your say?

One is lost for words, I thought we had finished with this; Obama is acting the asshole and the rating agencies aren't worth tiddly squat.

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BP has only given out information when forced to do so, has been secretive, crass in its public relations and allowed itself to be bullied by all and sundry. In no aspect has BP taken the initiative and as a result, the share price and ratings are taking a pounding. BP may well not survive this in its current form. The shareholders should insist that an inquest is held and all responsible parties be fired - a considerable number of senior people would be on that list.

However, Obama has insisted on calling BP: 'British Petroleum' a name that disappeared nearly 10 years ago and has given the lame, stationary target a good going over. Kicking Jonny Foreigner plays particularly well to the American public and distracts people from the fact that as the President, Obama is ultimately responsible for managing disasters like this. And in this instance, they have been particularly poor. The US administration would not leave the defence against a cyber attack up to the Internet Service Providers (they should play a role, but minor), nor should the administration expect the oil companies to have a plan B and plan C in order to protect against a nightmare scenario that is currently unfolding. Ultimate defence rests with the US Administration.

Deepwater Horizon is the oil industry's Chernobyl or Three Mile Island. Just with more fallout.

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I have little faith in Fitch and the other so called credit rating agencies, but BP is getting the short straw as they had been working well within the current rules of the government agencies such as the Mineral Mining Agency (MMA) and the American Petroleum Industry (API). Fine for Waxman (Democrat California) to say that the oil industries safety programmes are not worth the paper they are written on, but who in the government will be counted when the inquiry starts? I'm off to Texas tomorrow and will interested to hear about Tranoacan and Haliburton's position on responsibility and what they think of Union Carbide and Bopal where the the latter killed 15,000. Short memories abound in the USA and what has Obama said out that, nothing!

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Obama is picking on BP like a school bully because he can. The sums of money he is demanding have nothing to do with the cost of the clean up, they relate to how much he thinks BP can afford. Transocean, Haliburton and Cameron are not being bullied because they haven't the wherewithal to pay.

As a shareholder in BP I have lost over £20,000 through no fault of my own, but nobody will compensate me. It would be fair if this were my share of the clean up costs but not when it is the consequence of Obama demanding money with menaces, blackmailing BP with the threat of forfeiting the right to operate its US assets.

The way to handle immature bullies is to stand up to them. I think BP should counter-claim against the US government for all BP's costs and losses, because the government agencies totally failed in their duty to regulate Transocean and ensure through testing and inspection that their blow-out preventer would function when required. That is the route cause of this disaster, not BP wishing to conclude drilling operations as soon as possible.

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fammorris

Jun 16, 2010 at 12:21

BP may be FLOUNDERING but it has not yet FOUNDERED.

Bophal, West Virginian Coalfields; we could go on

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