BP rocked by ratings downgrades over oil spill disaster

3rd June 2010, Comments 0 comments

British energy giant BP was hit Thursday by two ratings downgrades over the Gulf of Mexico oil disaster and admitted that it had been ill-prepared for the worst spill in US history.

International ratings agency Fitch said it had cut BP's long-term issuer default rating and senior unsecured rating from AA+ to AA and had placed them on negative watch, citing risks from the enormous oil spill.

"The downgrade of BP's ratings reflects Fitch's opinion that risks to both BP's business and financial profile continue to increase following the Deepwater Horizon accident in the US Gulf of Mexico," Fitch said.

"The company has so far repeatedly failed to stop the resultant oil leak and has instead reverted to containment methods that are yet to be fully implemented and are subject to potential weather related disruption."

Moody's Investor Service also lowered BP's long-term debt ratings, from Aa1 to Aa2 and placed them on review for further possible downgrade.

"Today's downgrade of BP's long-term debt ratings reflects Moody's expectation that the protracted oil spill ... caused by the explosion on the Transocean Deepwater Horizon drilling rig, will result in significant containment and clean-up costs as well as litigation costs," it said.

"Moody's expects these costs to weigh significantly on BP's free cash flow generating capacity and to constrain its ability to focus on other key areas of the company's business in the near to intermediate term."

In a further twist, Moody's will seek to ascertain how the disaster will affect BP's long-term US business prospects, particularly in the Gulf of Mexico where it is the biggest operator and producer.

It will also look to assess BP's future drilling and producing costs in the United States and elsewhere, as well as the group's business profile and future financial performance.

For the last six weeks, the BP has failed in all its attempts to cap or contain the leak since an April 20 explosion ripped through the BP-leased rig.

The White House announced Thursday that President Barack Obama will make his third trip to the Gulf of Mexico region on Friday to survey the latest efforts to respond to the massive oil spill there.

Earlier on Thursday, BP pledged 360 million dollars for the construction of six sand barriers to help keep oil from reaching Louisiana's fragile wetlands, in a move which will push its total costs to 1.35 billion dollars.

Fitch forecasts that BP's costs could reach between 2.0-3.0 billion dollars this year, depending on how much oil hits the US shoreline.

BP chief executive Tony Hayward admitted Thursday that the oil giant had not been prepared for a deep-water leak.

"What is undoubtedly true is that we did not have the tools you would want in your tool-kit," Hayward told the Financial Times newspaper.

Although he said BP had been "very successful" in keeping oil away from the coast, he accepted it was "an entirely fair criticism" to say the firm had not been fully prepared for a deep-water oil leak.

BP has meanwhile successfully cut an underwater wellpipe using hydraulic shears and will now work to place a containment vessel over the leak, the senior US official overseeing the response said Thursday.

The London-listed giant added that it will pay for the construction of six sand barriers to help keep oil from reaching fragile wetlands, supporting the US government's Louisiana barrier islands proposal.

US officials had ordered the company on Wednesday to pay for five more sand barriers in the Mississippi Delta to help minimize potential damage to vulnerable shorelines.

Fitch also warned Thursday that an official US investigation was another negative factor for BP, while it could still face more downgrades.


© 2010 AFP

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