Scenarios: BP hopes for relief after $20 billion fund deal

LONDON/WASHINGTON (Reuters) - BP hopes its agreement to create a $20 billion fund to compensate those impacted by the Gulf of Mexico oil spill will help it contain the massive political and financial risks it faces.

BP's stock has ticked up since Wednesday on investor optimism that this will be the case, yet it remains 43 percent below the pre-blowout levels -- a loss of almost $80 billion in BP's market value.

Nonetheless, the $20 billion exceeds analysts' expectations of the total amount London-based BP would have to pay out in claims, and the government has said the payments won't even cap BP's liabilities.

The following is an updated look at the potential scenarios BP may face in the months ahead.

BP RUNS OUT OF CASH - UNLIKELY

The White House deal makes it even less likely than before that BP will run out of cash.

In addition to creating the fund, BP agreed to cancel three dividend payments this year, saving it almost $8 billion in cash; cut capital investment by 10 percent or $4 billion over the coming two years; and raise $10 billion in asset sales.

BP says it has spent $1.75 billion so far to cap the leaking well and clean up the oil spilled, and estimated last week it would spend $3-$6 billion in total this year.

Even if compensation payments rapidly escalate, BP is expected to be able to fund itself comfortably. Deutsche Bank said in a note that BP's concessions removed any concerns about BP's liquidity.

The company generated cash of $7.7 billion from operating activities in the first quarter.

Goldman estimates $34 billion of total liabilities for BP in the coming years -- a figure BP could largely cover out of free cash flow this year and cash saving measures agreed.

Barclays Capital estimates a $50 billon hit, including fines and reduced long-term value of investments, while Societe Generale estimates just $18 billion in costs, before government fines.

Tax experts believe the bill will be tax-deductible, suggesting the actual cash hit to BP and its shareholders will be less -- if BP risks the bad publicity to claim it.

CEO HAYWARD LOSES HIS JOB - UNCERTAIN OUTLOOK

Investors were relieved Tony Hayward avoided any of the gaffes for which he has become known in recent weeks, in his testimony to Congress on Thursday.

Nonetheless, one of the Congressmen on the committee did echo President Obama's comments that the CEO should be replaced.

Analysts and investors have so far supported Hayward and Chairman Carl-Henric Svanberg told a Swedish newspaper on Thursday that the board had not even discussed the CEO's future.

However, the blame for the well blowout is creeping closer to BP and its management team, with even rivals criticising BP's well design.

Critics in Congress who argue that, far from putting safety first, as Hayward promised on becoming CEO three years ago, he led a regime where corner-cutting was standard.

If investors come to believe that they have taken an $80 billion hit because Hayward failed to make good on his promise, his position could become untenable.

Bookmaker Paddy Power is offering odds on Hayward's departure by December 31 that suggest punters think it is more likely the CEO won't be in office in 2011.

CHAIRMAN LOSES HIS JOB - UNLIKELY, FOR NOW

Svanberg has been criticized by investors and several British newspapers for his low profile in the response effort.

His first attempt to take a more active role fell flat when he had to issue an apology for statements he made immediately after his White House meeting.

His behavior has been contrasted with the high-profile approach taken by predecessor Peter Sutherland, nicknamed by Hayward as BP's "tank," when forcing former CEO John Browne to name a retirement date and defending BP's Russian interests in a dispute with Russian partners.

After a tortuous search for a successor to Sutherland, investors may be uneager to ditch the former CEO of Sweden's Ericsson.

However, if the investigations into the disaster lay blame at BP's senior management and Hayward personally, shareholders may decide a full cleanout at the top of the company is required.

BP TO LOSE GOVERNMENT CONTRACTS - LIKELY, BUT IMPACT MINOR

Under federal law BP could be banned from government contracts if it is found to have broken environmental laws.

The company has multibillion dollar contracts to supply fuel to government departments such as the military.

However, the government would have to weigh the impact of such a move. For example, it may have difficulty finding alternative suppliers in locations like Afghanistan.

Also, selling fuel is one of the lowest margin businesses oil companies operate. Much more money is made from pumping oil from the ground and even if the government doesn't buy BP's jet fuel or gasoline, others will.

So the absolute value of contracts affected may not be material to BP.

BP TO FACE GROWTH HEADWINDS IN THE FUTURE - LIKELY

BP's targets for expanded production will become tougher to achieve after it agreed to a 10 percent cut in investment in the coming two years and its promise to sell assets.

BP's ability to expand in the Gulf of Mexico -- on which it relies heavily for growth -- will also be in question given that the company is likely to face much tougher scrutiny from regulators, analysts said.

Outside the United States, the accident could also reduce BP's standing as a partner of choice, potentially limiting its ability to strike contracts with other governments, Barclays Capital said.

Some commentators have called on BP to have its licenses removed and pressure for this could increase if the accident probes are unflattering for the oil giant.

The U.S. government has several regulatory avenues through which it can limit BP's development in the Gulf, including stripping its operatorship or suspending its leases.

BP's cooperation with the government on the fund may make drastic actions on leases somewhat less likely, but a lot will depend on the outcome of the spill investigations.

BP TO FACE FINES AND PENALTIES - LIKELY

BP hopes that by showing its willingness to make good on the damage its well has caused, the White House deal will reduce the possible penalties it will face, which will likely be in the billions of dollars.

Analysts at Deutsche Bank said President Obama's comments after the meeting were "supportive of BP's longevity in the U.S."

Nonetheless, BP has said it expects fines. Barclays Capital estimates these will amount to $27 billion, based on a possible $4,300 per barrel fine for polluting major waterways.

The government estimates up to 60,000 barrels per day have been spilling from the well.

It is unclear whether the government will seek the maximum fines or whether it will offset money spent remediating the damage when setting fines. Experts expect that BP will negotiate a plea agreement with the U.S. Justice Department.

However, given the potential extent of the damage from the spill, there will likely be political pressure for the Justice Department to prosecute the oil company to the fullest extent of the law.

Further, the company has been a repeat offender of U.S. environmental laws which could increase penalties.

Another question is whether criminal charges will be pursued against any executives at the companies involved in the spill, however the burden of proof there would likely be high.

For more detail on potential fines please read:

BP BECOMES A TAKEOVER TARGET - UNLIKELY

Speculation that BP could become a takeover target has been heightened this week by news the company had hired investment bank Goldman Sachs as an advisor.

Exxon Mobil, Royal Dutch Shell, Chevron and France's Total are the only fully publicly traded oil companies larger than BP and deemed financially strong enough to buy it.

Total Chief Executive Christophe de Margerie said it would be "unethical" to make an approach and analysts think the CEOs of the other companies would also be reluctant to bid.

Regulators could force the sale of U.S. refineries into an uncertain market for such assets and the sale of valuable U.S. gas fields, threatening the upside of a deal.

However, the biggest deterrent is the open-ended nature of BP's liabilities. A potential suitor would also fear reputational contamination, analysts said.

A takeover by a state-backed entity like one of the Chinese oil companies is inconceivable, analysts said, as BP is the United States' biggest oil producer. They also noted the blocking of the sale of U.S. listed and Asia-focused Unocal to a Chinese company.

(Reporting by Tom Bergin; Editing by Richard Chang)