BP Shares Gain Following Oil Spill Settlement

The start of the new week saw shares in BP BP top the FTSE 100, after traders had their first chance to react to the fact that the company had agreed to pay out $7.8 billion in settlement of claims relating to the 2010 oil spill in the Gulf of Mexico. The news of the settlement prompted BP's stock to rise 2.3% to 507.7 pence, numbers which saw BP outperforming London's benchmark index. BP came out to say that the settlement is not expected to add to the total cost the company already expects to face as a result of the spill, which is estimated by BP as being in the ballpark of $37.2 billion. According to the Financial Times, the settlement does not change the fact that BP remains in dispute over responsibility for the disaster with other companies that had been working on the Deepwater Horizon drilling rig. Following the news, BP's shares made the best gain ahead of what will be a busy week for data releases. “As we kick off the week equities are heading lower, taking their cue from a slowing growth outlook from China,” said Mike McCudden, head of derivatives at Interactive Investor, to the FT. “The message being sent around the globe is that the price of oil is putting the brakes on growth in emerging markets.” Following news of the settlement, Oppenheimer released a research report on Monday morning saying that the settlement is not an admission of liability by BP and is a major step to putting this episode behind it, paving the way for settlements with the government. The payment will be made from the $20B Trust and includes $2.3B economic loss claims by the Gulf seafood industry. BP has spent more than $22B to date, including $8.1B to individuals, businesses and government entities and $14B on containment and cleanup costs. “BP shares have gained 11.3% this year, compared with gains of 6.2% for its peers and 8.9% for the S&P 500. The shares are trading 3.2% off their 12-month high and 41.4% above their low, compared with 6.5% and 33.9% for the peer average and 0.6% and 27.4% for the S&P 500.” Bank of America Merrill Lynch said that the settlement is subject to reaching written agreement within 45 days and excludes other civil claims (eg, natural resources damages & economic losses due to drilling ban) as well as the cases pursued by the DoJ on Clean Water Act and by the five Gulf Coast States. Citi said in its reports that the settlement that BP reached over the weekend is with the Plaintiff Steering Committee (PSC), representing individuals and businesses that were either economically or medically affected by the Macondo incident and had not previously received claims under the Gulf Coast Claims Facility. The settlement sees these claims governed by a Court-supervised claims process and US$7.8bn is BP's best-estimate of how those claims will be resolved.