TEXT-Fitch:BP, DoJ settlement positive but key uncertainty remains

Fri Nov 16, 2012 4:40am EST

Nov 16 - BP's USD4.5bn settlement with the US Department of Justice and Securities and Exchange Commission is an important step towards resolving the company's oil spill liabilities, Fitch Ratings says. But although the settlement removes another aspect of legal uncertainty, it does not address Clean Water Act claims, whose size cannot yet be determined.

We said in July when revising the company's Outlook to Positive that BP should be able to cover its remaining legal costs without impairing its financial profile, and that a comprehensive settlement of remaining liabilities for USD15bn or less would support an upgrade. Recent asset sales have also strengthened BP's credit profile. The company had realised USD35bn of its USD38bn targeted asset disposal programme at end-Q312. Proceeds from the sale of its 50% stake in TNK in Russia will further improve its liquidity, supporting our view that the company can meet legal costs without impairing its profile.

But BP's settlement does not cover federal civil claims (including Clean Water Act claims and federal and state Natural Resource Damages claims), private civil or securities claims or state economic loss claims. It is therefore too early for us to consider taking a rating action.

The determination of whether or not BP could be found grossly negligent is key to finalising a claims settlement, as the amount of the Clean Water Act claims varies significantly. A civil trial that will determine negligence is due to begin in New Orleans in February 2013.

Other factors that could contribute to an upgrade to 'A+' for BP beyond the legal issues discussed above would primarily relate to a combination of the successful implementation of the company's upstream business strategy unveiled in October 2011 and achieving a financial profile similar to that of higher-rated oil and gas peers.