Bloomberg has this chart suggesting $95bn has been wiped off the price of the five companies associated with the GoM oil leak:
It suggests Transocean’s decline has been steepest, but it’s the giant market cap of BP that inevitably has attracted the most attention. The company is thought to have lost about $26bn of its value thanks to the Deepwater Horizon accident, when compared against its sector.
Several equities analysts believe, based on the likely costs of the spill, that BP shares have taken a bigger hit than is warranted. But arguments are emerging against this view.
Firstly, it remains difficult to make estimates given that several attempts to stop the leak have failed; and even BP’s chief executive puts the odds of the next attempt at no higher than 70 per cent. There are also many unknowns about the liabilities, too. A post we syndicated from FT Alphaville on Tuesday looked at analysis by Cannacord Genuity suggesting that, in a worst case scenario for BP, damages could be as high as $60bn — or about $26bn in the mid-range; about what the company’s market capitalisation has lost since the accident.
Meanwhile the FT’s Lex column has some questions over those forecasts (coming from the likes of Merrill Lynch, Citigroup and Bernstein Research), that costs to BP are not likely to exceed $8bn – $12bn:
For example, analysts at UBS reached a figure of nearly $12bn by converting Exxon Valdez clean-up costs to 2010 dollars and adjusting for the size of the spill ($3.7bn) and replacing between 25 and 100 per cent of annual tourism and fishing revenues to four affected states ($7.9bn). Because fines are tax-deductible, the net cost would be just $5.1bn.
As the column notes, this assumes that the ‘top kill’ will indeed work, and that damages claims won’t be unexpectedly large. Plus,
Predicting the response of regulators in the US, BP’s single most important market, is also tricky. With important congressional midterm elections looming, extracting what might seem an unreasonably large pound of flesh from BP could prove tempting.
Along with stopping the well and the environmental damage, the costs to BP remain in the category of yet more ‘known unknowns’.
Related links:
$47bn and counting - FT Alphaville
Oil spill cost uncertainty gives Moody’s pause for thought - FT Energy Source
