BP can cope with 20 billion oil fund commitment: analysts
BP is strong enough financially to set aside 20 billion dollars to pay claims from the Gulf of Mexico oil spill, although it would have to borrow more, analysts said Wednesday.
"Regardless how the payments mechanically happen, BP has the financial strength to fund it," said Jason Gammel of Macquarie Research, shortly before US President Barack Obama confirmed the amount.
"They have enough cash flow and quality assets that will allow it to fund that type of liability," he added.
Peter Hutton of stockbrokers NCB in London added that BC will have to borrow more to finance 20 billion dollar commitment.
"The impact will be to take BP beyond its 20 percent gearing ceiling and trigger additional borrowing, against a background of rapidly rising credit spreads for BP," he said.
The comments came as Obama said BP had agreed to set aside 20 billion dollars in an independently run escrow account to pay claims from the Gulf of Mexico oil spill, but stressed this was not a cap.
BP also agreed to set up a 100-million-dollar fund for unemployed oil workers, Obama added after "constructive" talks at the White House with BP chairman Carl-Henric Svanberg.
Analyst Hutton added: "We estimate that BP interest charges more than double from 1,100 million dollars in 2009 to an annual run rate of 2,300 million dollars.
"This is based on BP being obliged to place 20 billion dollars into escrow as called for in US, taking BP seven billion dollars over its 30 percent gearing ceiling.
"We estimate that BP could have to borrow up to 10 billion dollars at rates around 10 percent, he added.
© 2010 AFP