BP plc (BP - Free Report) is likely to pay additional charge of about $1.7 billion in fourth-quarter 2017 relating to the 2010 Deepwater Horizon ("DWH") spill.
The Court Supervised Settlement Program ("CSSP"), which was established post the DWH, has ordered BP to pay a post-tax non-operating charge of about $1.7 billion for the remaining Business Economic Loss ("BEL") and other claims related with the CSSP. The payment will be carried out over a multi-year period.
The high claims determined by the CSSP along with the effect of the Fifth Circuit’s adverse May 2017 ruling on the matching of revenues with expenses while appraising BEL claims has resulted in this charge.
In 2018, cash payments related to DWH are estimated at about $3 billion compared with BP’s estimate of just more than $2 billion in the third quarter.
However, BP continues to appeal determinations of claims that it believes are non-compensable under the Plaintiffs’ Steering Committee settlement agreement.
Per BP, now that the claim’s facility work is nearing end, it is easier to estimate remaining material liabilities in connection with the catastrophe. The charges are totally in sync with the existing financial framework.
The claims are about seven times higher than the company’s expectations. By the end of September 2017, BP paid about $63.4 billion to cover clean-up costs and legal fees connected to the largest environmental disaster in the U.S. history where 11 rig workers were killed. Moreover, hundreds of outstanding claims have yet to be closed.
BP’s shares have gained 9.6% compared with the industry’s rally of 12.9% in the last three months.
Zacks Rank & Other Stocks to Consider
BP carries a Zacks Rank #2 (Buy). Other top-ranked players in the energy sector include Statoil ASA , Pioneer Natural Resources Company (PXD - Free Report) and Denbury Resources Inc (DNR - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Statoil, based in Norway, is a major international integrated oil and gas company. It witnessed an average negative earnings surprise of 8.44% in the last four quarters.
Headquartered at Irving, TX, Pioneer Natural Resources Company is an independent oil and gas exploration and production company. The company delivered an average positive earnings surprise of 67.62% over the preceding four quarters.
Headquartered at Plano, TX, Denbury Resources is engaged in the exploration, production and development of natural gas properties. The company pulled off an average positive earnings surprise of 125.00% during the same time frame.
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