BP sells $15bn in assets in preparation for legal battle over Macondo spill
But oil firm’s shares rally as third quarter earnings exceed expectations and plans are announced to triple drilling by 2014
guardian.co.uk, Tuesday 25 October 2011 14.35 BST
BP is to raise a further $15bn (£9.4bn) by selling off assets ahead of a massive legal case over the Gulf of Mexico accident amid rising concern that the fines and liabilities could be higher than expected.
But chief executive Bob Dudley also hailed an operational “turning point for BP” and outlined a range of strategic plans to more than triple annual drilling rates and double operating cash flow by 2014.
Dudley made his comments as the oil company reported third quarter profits of $5.1bn – down on the second quarter but triple the figure a year ago and above expectations. The turnaround message gripped the City and shares in BP rose 3.5% to 453.5p, boosted by a series of positive developments last week including a $4bn settlement with its partner in the ill-fated Macondo well, Anadarko.
But the spectre of being found grossly negligent in a civil case due to start on 27 February or in a criminal investigation by the US department of justice hangs heavily over the group. Dudley said the extra asset sales on top of the $30bn that are already being executed would enable BP “to focus our portfolio further on our areas of strength and deliver increased flexibility”.
The company admits privately it cannot foresee the exact scale of any financial claims against it from the pending legal case brought by businesses and members of the public affected by the Macondo spill, although Dudley continues to vehemently deny any corporate gross negligence. The sheer scale of legal fees has already rattled the company which admits it would like to find an out-of-court settlement against the legion of plaintiffs to avoid what it admits could be a “very, very long process”.
The death of 11 workers and huge oil spill on the southern states of the US as a result of the Deepwater Horizon explosion in the spring of last year has forced BP to establish a $20bn trust fund to pay off liabilities. It also sent BP’s financial results spinning downwards to an annual loss of $5bn in 2010 and forced the start of the $45bn sell-off – equivalent to a third of the company’s current stock market value.
The disposal of assets helped force down production in the third quarter of this year to 3.3m barrels a day – 12% lower than 12 months ago and Dudley was unwilling to say what the level might be in three years’ time.
BP is disposing of two refineries as part of its latest $15bn disposal programme but said there was no question of selling off – or demerging – its entire “downstream” portfolio of refineries and petrol stations as some had predicted.
There will certainly be expansion of its “upstream” operations such as oil and gas exploration with the number of wells planned increasing from a current level of six a year – although historically eight – to 25 annually by 2013.
BP would continue to grow its deepwater drilling and said it had enormous opportunities in places such as Brazil, Angola and even the North Sea. This would allow the company to double its cash margins from production, generating money that could pay for higher dividends and share buybacks.
The latest numbers and strategy plans went down well with financial analysts who have seen BP shares trail badly behind the rest of the oil sector. Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said that a “real possibility that BP is at an inflection point has bolstered the shares in early trade. The numbers have exceeded expectations as the company undergoes a huge corporate transformation.”
But Tony Shepard at Charles Stanley was more cautious. He noted: “The key event will be the department of justice ruling on the criminal and civil investigation which is unlikely before 2012.”
BP stressed it was putting more effort than ever into safety issues but said there was no question of it backtracking on tackling environmentally sensitive provinces such as the Arctic – even though its planned tie-up with Rosneft of Russia had collapsed. The company is also gearing up to re-enter politically volatile areas such as Libya.