The journalist Andy Rowell wrote a blog last night asking “BP will survive, but what about the others?” He was specifically talking about the rest of the oil industry in north America, but the immediate fallout could yet cause further damage to the other two companies directly involved in the gulf oil spill: Halliburton and Transocean.
Transocean received a reminder that the pain has not yet eneded last month when Moody’s downgraded its credit rating from Baa2 to Baa3. Last night Kenneth Austin from Moody’s explained the ratings agency’s thinking.
“Regardless of the responsibility that Transocean will bear for the Macondo blowout, we do not believe that its risk profile reflects a Baa2 ratings.”
The agency said Transocean’s stake is likely to be limited to 10 per cent of the total liabilities. But this could yet run as high as $6bn.
“Transocean has sufficient cash, free cash flow and credit arrangements to address a $6 billion responsibility without losing its investment-grade rating, but any damages beyond that could force the company to consider ways to raise additional capital.”
In the longer term, Andy Rowell argues, there could be further fallout via insurance firms:
BP’s drilling company Transocean, which owned the rig leased by BP, insured its oil platform at Lloyd’s of London. Lloyd’s has estimated net losses from the explosion at up to $600m. It has asked a judge to limit its exposure as an insurance carrier for Transocean, on the basis that BP was grossly negligent.
Stephen French, managing partner at Legalbill, a legal consulting firm based in the US, said: “If Lloyd’s fails to limit its exposure, it will take a hit in the short term. But in the long run, Lloyd’s and its underwriters will raise insurance rates, and future insured energy companies will bear the cost of past misfortune.”
And if Lloyd’s takes too great a hit then it might not offer deepwater insurance.
As for BP’s own survival – it’s probably worth pointing out that credit default swaps on the company’s corporate debt are still trading stubbornly below investment grade at about 196 basis points: