Claims from a number of US states for $34 billion in damages relating to the April 2010 Gulf of Mexico (GoM) oil spill have not put too big a dent BP's (BP.) share price – it has ticked down 0.6% to 466p (6 Feb) – but analysts suggest they could prove a drag on the shares in the medium to long-term.
Reports indicate the demands, from Alabama, Mississippi, Florida and Louisiana, could take the total bill for the spill to $90 billion.
It is now almost three years since the Deepwater Horizon rig, which was drilling the extreme deep water Macondo well, exploded. The issue continues to dog the company.
The initial explosion killed 11 workers and ultimately resulted in the largest environmental disaster in US history. It also wiped billions of BP's market cap and cost the group's chief executive officer Tony Hayward his job.
Since 2010 the group has sold off nearly $38 billion worth of assets – partly to cover spill-related costs and partly in an effort to become a more streamlined company with a greater emphasis on oil exploration.
BP argues the states' claims are 'substantially overstated'. It has already committed around $37 billion and provided a $42 billion assessment for all claims relating to Macondo. An inability to settle these fresh claims would complicate matters as it tries to avoid a related civil trial due to start on 25 February with separate talks also under way with the federal government on a Clean Water Act settlement – with estimates ranging from $5 billion to $21 billion.
The numbers look huge but the revelations have not led to a widespread sell-off. In fact since the start of the year the UK's second largest oil company by market cap has actually advanced nearly 10% in value.
The real damage brought by these new claims lies not just in the cost, which clearly could be substantial, but in the ongoing uncertainty they will cause. According to Oriel Securities, which has a hold recommendation on the stock, any arguments in favour of being invested in BP rely on a final resolution to the Gulf of Mexico crisis.
Oriel says: 'Whether there is any merit to these new claims and their size is secondary to shadow the issue will now cast over BP’s recovery post Macondo. The 2013 financial year had been shaping up as a year when BP could complete its transition post Macondo but with these new claims now emerging the uncertainty around this issue is likely to dampen any further share price recovery.'