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UPDATE 2-Spill wipes $23 bln off BP, pressures debt rating
* Shares fall 17 pct, cost of protecting debt jumps
* Total spill cost $990 mln vs $67 bln slide in market value
* Analysts eye long-term damage, see possible bid target
* Latest potential fix seen as risky, could worsen situation
* Focus switches to relief wells, not ready until August
(Adds share slide, wider CDS, analyst comment)
By Sarah Young
LONDON, June 1 (Reuters) - Fears oil may continue spewing into the Gulf of Mexico for another two months into the hurricane season wiped $23 billion off BP's (BP.L) market value on Tuesday and sent the cost of protecting its debt soaring.
Once Britain's biggest company and one of the largest oil firms in the world, BP's debt is AA rated -- close to the highest rating given to non-sovereign bonds. However, traders of debt derivatives pushed the perceived risk of default out to a level similar to that of a much smaller oil company, such as Spain's Repsol (REP.MC), or one of Europe's weakened banks.
Analysts also cited rising takeover speculation, although they said reputational damage and the unknown financial cost of the spill would deter suitors for the moment.
BP could now be easy prey having lost over a third of its market value or 46 billion pounds ($67 billion) in six weeks. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Take a Look on [nSPILL] Graphic here Reuters Breakingviews column on [ID:nLDE6500HY] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
"Given the collapse in the share price and the potential for it to fall further we expect that it (BP) could become a takeover target - particularly if its operating position in the U.S. becomes untenable," said Dougie Youngson, analyst at Arbuthnot Securities.
Shares in BP fell close to 17 percent on Tuesday, hitting their lowest point in over a year as the London market opened for the first time since the failure of its latest attempt to stem the biggest oil spill in U.S. history. [ID:nN01262229]
The drop meant the British oil group was worth about 77 billion pounds versus 93 billion on Friday and 123 billion pounds prior to a rig explosion in April that killed 11 workers and unleashed oil from a well head one mile (1.6 km) down.
The cost of protecting the company's debt against default rose sharply, with five-year BP credit default swap widening by 71 basis points to 173 basis points. [ID:nLDE65010G]
BP on Tuesday outlined plans for another, riskier attempt to contain the spill but the failure over the weekend of the "top kill" option to plug with well with heavy fluids meant attention was increasingly switching to the drilling of two relief wells, which won't stop oil leaking until August.
"Last weekend's operations for me were really the last opportunity for them to kill the well and what they're proposing to do next has a real potential for making the situation worse," said Youngson.
BP now hopes to deploy a containment cap later this week and pipe leaking oil up to the surface. The latest plan is risky because it involves cutting pipes which are damaged, and whose damage is currently limiting the flow of oil into the sea.
AUGUST FEAR
BP's ultimate plan for stopping oil leaking is through two relief wells which it started drilling in May but which won't reach the right depth until August.
"The word August is getting used quite a lot now by the BP management," said Alan Sinclair, analyst at Seymour Pierce.
Two more months of oil leaking into the Gulf would worsen the environmental catastrophe, as might hurricane season which began on Tuesday, raising the risk of more oil being driven ashore and clean-up efforts being disrupted. [ID:nN01262229]
The total financial cost of the response now stands at $990 million, up from a $930 million estimate on May 28 while almost 46 billion pounds has been wiped off BP's market value so far.
"Although we believe that the market has overreacted to the bad news, we feel that there will be little stimulus to the shares while the leak continues to pump oil into the sea," said Panmure Gordon analyst Peter Hitchens.
Shares in BP were down 15.4 percent to 418.75 pence at 1050 GMT having earlier fallen to 411.50 pence and their lowest point since March 2009. Britain's index of blue chip companies .FTSE was down 2.2 percent. (Editing by Paul Hoskins and Andrew Callus) ($1=.6852 Pound)
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1 – There is no way to actually predict the monetary value of this, not because the US has been such a volatile financial field for the past 30 years, not because the the Gulf of Mexico has been a dumping-ground for the past 50 years and not because Texas is such a toilet that it’s actually being outsourced to… but because we’re reaching the tipping point where the Dollar Almighty™ is in its downfall.
2 – This “oil spill” business has gone WAY past bedtime. The only reason it happened in the first place is ignorance/negligence, there’s no reason it shouldn’t have been shut off and/or contained as soon as it did happen, there’s no reason proprietary chemicals or anything should have been used to make sure the public “doesn’t have to look at it”, there’s no reason it should have become politicized in any way, and there’s no reason it should still be an issue at all.
This isn’t Obama’s Katrina, it’s his 9/11
.
Whomever authorized and/or decided to use saltwater instead of the proper oils for the drilling platform and any other contributory causes to this incident must be held accountable, whomever did authorize and do these negligent things. You don’t spill millions upon millions of gallons of petroleum without punitive measure, surely not.
But the answer to this crisis isn’t to tie our hands and to put more regulation upon the oil industry – already one of the most regulated in the world. Laws cannot pre-emptively solve problems, only retro-actively sanction them. More regulation will not prevent something like this from happening in the future. Abiding proper protocol, as should have been done from the beginning, would have sufficed, and has for many years, and will continue to suffice.
What else shall we do? Put a moratorium on the other literal 99.9999999% of wells that operate cleanly and efficiently and lessen our dependence upon the Middle East? Shall we simply attach our lips to the hind-end of Saudi Arabia permanently, to our lasting detriment?
Or can we come together and solve the problem instead of casting non-solutions on top of an already serious problem? Let’s clean this up as quickly as possible, which is already being done, and continue to ensure that proper safety protocols are observed and let us continue to lessen our reliance upon foreign nations whose population continually refers to us as the ‘Great Satan.’
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