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BP could have to pay $25bn to settle Gulf oil spill claims, says bank

Morgan Stanley says settlement could be double BP’s provisions

BP is facing the prospect of civil litigation at the end of February regarding the Deepwater Horizon oil disaster.

The suit is set to address economic loss, injury and environmental claims following the spillage in the Gulf of Mexico, including those brought against BP and its partners and contractors by the US Department of Justice.

Analysts at Morgan Stanley believe BP and the DoJ may come to a settlement before the case starts:

The outcome of [the case] if it were to start, would be particularly uncertain and difficult to predict. Given the large amounts involved, we believe both BP and the DoJ will find the associated risk unattractive. Hence, we see a 70%-80% chance parties will negotiate a settlement ahead of 27 February.

That’s the good news. The bad is that Morgan Stanley has put a hefty figure on any possible deal:

We maintain our cautious view on BP [and] find the risk around the cost of such settlement relatively unattractive.

The bank expects a settlement of bn-bn, which would include not only BP’s civil charges but also criminal penalties and natural resource damage claims. This is significantly higher that the bn provisions which BP has already made, and puts an increase in its quarterly dividend in doubt. Morgan Stanley said:

Given the uncertainty over these additional charges and only modest visible progress on BP’s disposal program, we expect that BP will not announce an increase of the quarterly dividend.

But BP’s shares shrugged off the report, closing 1.05p higher at 482.45p.

Overall the market was in buoyant mood again, following reasonable bond auctions in Spain and France and the continuing talks between Greece and its private bondholders. In its fourth rise in a row, the FTSE 100 finished 38.78 points higher at 5741.15.

Banks led the way, both on growing optimism about the eurozone crisis and better than expected US bank results. Barclays was 20.25p better at 221.35p, Lloyds Banking Group closed 2.68p higher at 32.27p, and Royal Bank of Scotland rose 2.22p to 27.06p.

Tesco added 6p to 327p as US investment guru Warren Buffett raised his stake in the group to just over 5%. The supermarket shook off a downbeat note from Goldman Sachs, which was also negative on Morrisons, up 0.1p to 291.1p, and J Sainsbury, 1.5p better at 287.9p.

AstraZeneca slipped 41.5p to £30.70 after US regulators said they needed more clinical data before approving its new diabetes drug dapagliflozin, developed with Bristol-Myers Squibb. Dr Mike Mitchell at Seymour Pierce kept his reduce recommendation, saying:

The dapagliflozin episode staggers on. Last July, the Food and Drug Administration Advisory Committee voted 9-6 against approval, with concerns raised on the drug’s effectiveness in patients with kidney problems. In October, the FDA then extended the goal date to Jan 28 2012. This morning, we hear that the FDA has issued a complete response letter requesting additional clinical data to allow better assessment of the benefit-risk profile of the drug. If one wishes to look on the bright side, the drug is at least still in play: however, the fact that additional clinical data is required – rather than merely further analysis of already-submitted studies – is clearly not ideal. The comment that [the companies] will work closely with the FDA to determine appropriate ‘next steps’ for the application tells us that the timelines on dapaglifloxzin will continue to be broad and ill-defined.

Aberdeen Asset Management dipped 3.8p to 226.1p as the fund manager said clients had increasingly taken their money out at the end of last year on concerns about the eurozone crisis.

Heritage Oil was 8p higher at 192p on vague takeover speculation.

Lower down the market EKF Diagnostics ended 3.625p higher at 25.5p. The maker of diagnostic devices said its full year earnings would be significantly ahead of market expectations.

The company’s broker Collins Stewart set a 43p target price and said:

We expect solid trading to be supported by updates on new product launches and distribution deals throughout the year, providing positive momentum. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds