TEXT-Fitch:BP US ban likely to be short-lived

Thu Nov 29, 2012 7:37am EST

Nov 29 - The ban on BP winning any new US government contracts is likely to be relatively short-lived, Fitch Ratings says. The ban would have to continue for several years for it to affect the group's rating. This is highly unlikely because of the importance of the US market to the oil group and its significant investment in safety since the Macondo disaster.

The Environmental Protection Agency's action, announced on Wednesday, is standard practice in a case like this. We believe BP has made significant progress in improving safety globally, including installing more advanced blow-out preventers that exceed industry standards. These improvements, combined with BP's statement that the EPA is preparing an administrative agreement that would lift the ban, suggest it will not last long enough to affect the group's credit profile.

New exploration and production licences are made available regularly and BP may therefore miss out on some opportunities while the ban is in place. But we do not believe this would have a significant impact on the company's presence in the region unless it continued for several years.

The ban will not affect existing supply deals or the company's production operations. Although US government supply contracts are valuable, they represent only a small fraction of revenue and the group will not struggle to sell fuel to other customers if it is unable to win new government contracts.

One area that remains unclear is how the ban could affect negotiations to settle federal civil claims. BP agreed to pay USD4.5bn to settle with the US Department of Justice and Securities and Exchange Commission earlier in November, but has not reached a settlement regarding Clean Water Act claims. We said in July when revising the company's Outlook to Positive that a comprehensive settlement of remaining liabilities for USD15bn or less would support an upgrade.

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