TEXT-Fitch:BP asset sale strengthens cushion to meet Macondo costs
Oct 23 - BP's agreement to sell its 50% stake in TNK-BP to Rosneft means the company should be able to cover any further legal costs arising from the 2010 Gulf of Mexico oil spill without impairing its financial profile, Fitch Ratings says. An upgrade to BP's 'A' Long-Term Issuer Default Rating (IDR) would require evidence that its new upstream business strategy is being successfully implemented, or of a better-than expected settlement with the US Department of Justice.
The sale itself, which will swap BP's 50% stake in TNK-BP for an 18.5% stake in Rosneft and around USD12.3bn in cash, is broadly neutral for BP's rating, as it would not reduce the company's reserves or production under our approach. However, it will take BP well beyond its USD38bn target for asset sales, increasing its ability to meet potential future legal costs. We estimate that BP's total costs arising from the Macondo spill will end up at between USD45bn-50bn, with the key remaining uncertainty being the amount it will have to pay to settle with the DoJ.
We would consider a settlement with the DoJ of USD15bn or less as a positive development for the company. We said in July - when we changed the Outlook for BP's IDR to Positive - that a favourable settlement with the DoJ could be supportive of an upgrade to 'A+'. However, the most likely route to an upgrade would be for BP to also show progress in its 10-point plan to improve its upstream business performance, which was set out in October 2011.
In particular, a focus on safety and the successful development of high-margin projects are key factors that could contribute to an upgrade. These projects are particularly important, as the company's oil and gas production (excluding TNK-BP and other equity affiliates) dropped by more than 20% between 2009 and 2011 due to asset disposals and the Macondo spill.
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