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BP Plc (BP - Analyst Report) has taken yet another small but crucial step toward securing capital to pay out the Gulf of Mexico (GoM) blowout-related costs. The contribution will come from Moex Offshore 2007 LLC, which agreed to pay BP approximately $1.065 billion. The amount was, however, much lower than the $2.14 billion that BP had billed to Moex Offshore.
Moex Offshore, a unit of Japan’s Mitsui & Co., was one of the co-owners of the disastrous Macondo well with a 10% interest. It reached an agreement with the British major to wrap up all mutual claims related to the incident. Importantly, this is the first time that BP will receive monetary assistance to cover its GoM costs.
The latest settlement is an important stride for the British major as it increases the likelihood of the similar deals with other Macondo co-partners, like Transocean Ltd. (RIG - Analyst Report), Halliburton Company (HAL - Analyst Report) and Anadarko Petroleum Corporation (APC - Analyst Report). BP also reaffirmed that it will continue to pursue these co-owners for paying their respective shares of clean-up costs and associated damage-related penalties.
Although Anadarko (which had a 25% interest in Macondo) recently indicated a possible settlement for around $2.66 billion, it denied any responsibility or damage/clean-up related due. The U.K. oil major had billed Anadarko more than $5 billion.
In April last year, the Gulf of Mexico oil spill incident had shattered BP’s basic business fundamentals and cost around $41 billion in capping and cleaning of damages as well as compensation for those affected. BP then took resort to various upstream activities and a $30 billion planned divestiture program to clear all its charges.
Just when BP was trying to focus on clearing its Macondo mess, things took a bad turn when its long-awaited share-swap agreement with Russia's state-operated oil company collapsed recently. However, management remains positive on the growth profile of BP and anticipates marked recovery as well as consolidation to reduce operational risk or oil spill related assignments.
We believe the Moex Offshore settlement will set an example for the other partners to follow. Moex Offshore has also displayed great corporate citizenship by contributing to the GoM costs.
BP ADRs currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. Longer-term, we maintain our Neutral recommendation.