BP Plc (BP) has reached an agreement with an affiliate of Weatherford International Ltd. (WFT) that settles all claims between the companies related to last year’s Macondo oil spill in the Gulf of Mexico (GoM). Per the deal, BP will indemnify Weatherford against all its liabilities or future claims related to the incident in return for $75 million.
The fund from Weatherford will help the British company to cover all disaster-related claims, including environmental damage and economic losses. However, the agreement does not include any civil and criminal fines and penalties or attorneys' fees.
Weatherford, which manufactured the float collar used in BP's blown-out well, intends to cover the full cost of the settlement from insurance policies it had at the time of the incident. Payment from the Switzerland-based oilfield services company, Weatherford, will be extended toward BP’s $20 billion trust established to address individual and or other claims emanating from the oil spill.
This is the second time that BP has managed to secure capital in order to pay out blowout-related costs. Last month, the company received an approximately $1.065 billion contribution from Moex Offshore 2007 LLC, a unit of Japan’s Mitsui & Co. Moex was one of the co-owners of the disastrous Macondo well with a 10% interest. It reached an agreement with BP to wrap up all mutual claims.
These deals are important for BP as they increase chances of similar settlements with other Macondo co-partners, like Transocean Ltd. (RIG), Halliburton Company (HAL) and Anadarko Petroleum Corporation (APC). BP has already stressed that it will continue to pursue these companies for their respective shares in clean-up costs and associated damage-related penalties.
Following last year’s GoM oil spill disaster, things took a bad turn for BP, costing $41 billion in capping, cleaning and compensations.
BP’s long-awaited share-swap agreement with Russia's state-operated oil company, Rosneft, could have been a silver lining. But even that collapsed recently. Although the company is pursuing various upstream activities to return to its main business flow, we believe it will take time for the oil major to regain its lost glory. 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.
BP ADRs currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. Longer-term, we maintain our Neutral recommendation.
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