Markets

BP's Partner Moex/Mitsui Chips in for Oil Spill

BP ( BP ) finally has the support of one of its partners in the ill-fated Deepwater Horizon project. MOEX and its affiliate Mitsui Oil Exploration owned a 10% interest in the Macondo well, and they are the first among BP's partners in the operations to recognize and acknowledge that the oil spill was due to a number of causes and involved mistakes by multiple parties. The accident, better known as the Gulf of Mexico oil spill, is the world's biggest oil spill to date. MOEX has signed an agreement with BP to pay a little over $ 1 billion - which will be contributed to the $20 billion Gulf of Mexico escrow fund. BP competes with other oil & gas heavy-weights including Exxon Mobil (NYSE:XOM), Royal Dutch Shell (NYSE:RDS.B), Chesapeake ( CHK ), Anadarko ( APC ) and Chevron ( CVX ).

We have a price estimate of $53.67 for BP stock , a premium of about 15% to market price.

The oil spill has put a substantial financial burden on BP…

BP has had no respite since April 2010 when an explosion in the BP-operated Deepwater Horizon drilling rig resulted in a spill which continued for 3 months and caused almost 4.9 million barrels of oil to leak into the Gulf of Mexico. The company estimated that the disaster came with a price-tag of about $41 billion, including the costs of cleanup and compensation.

BP has already incurred a large portion of this estimated expense, and will continue to contribute towards claims and liabilities arising due to the accident in the years to come.

… and this settlement will strengthen BP's claim that all parties responsible need to pay up

BP has been fighting to get other parties involved in the Deepwater Horizon project - either operationally through contracts or financially through stakes - to make appropriate contributions. These include Transocean - the owner and operator of the Deepwater Horizon rig, Halliburton (NASDAQ:HAL) - which designed and pumped the unstable cement that was a key cause of the accident, and Anadarko that had a 25% stake in the project.

Considering the scenario that BP is able to recover $10 billion of its Gulf of Mexico expenses - slightly less than a quarter of its total expenses - this would in itself represent a 5% upside to our $53.67 estimate for BP's stock.

See our full analysis for BP

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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