Yesterday's news that BP (BP.) had settled all claims relating to the April 2010 Deepwater Horizon rig disaster and resulting Gulf of Mexico oil spill for $18.7 billion is being warmly received by the market. The shares are up 0.8% today to 441p building on a 4% advance yesterday.
Although the sum involved is vast and adds at least $10 billion to the roughly $44 billion BP has already incurred in legal and clean-up costs it should mean that a long-standing monkey is finally off the company’s back. It is also worth noting that the payments are being made over a number of years with the company paying roughly $1.1 billion a year.
RBC Capital Markets analyst Biraj Borkhataria – who rates the shares at sector perform but has a price target of 500p – comments: ‘The total pre-tax charge of $10 billion is slightly higher than our $8 billion estimate; however, the increased duration of payments offsets the valuation impact of this, in our view. More importantly, the agreement should finally draw a line in the sand on Macondo for BP, which should result in renewed investor interest in the name. We expect the shares to perform well in the near term.’
Deutsche Bank is even more bullish, reiterating its buy advice and upping its price target from 470p to 485p. It comments: ‘Ask any sell-side analyst of their experiences when marketing BP over much of the past five years and the answer is near certain to include the term '... an uphill battle'. Despite clear signs of improved operations, major simplification of its business and an unwavering focus on driving value for shareholders, the uncertainties engendered by the Deep Water Horizon litigation have proven a huge deterrent for many investors.
‘Resolution via a settlement on terms that, to quote Bob Dudley, represent a 'win-win' for all concerned can, therefore, be seen as little other than a resounding positive.’