S&P cuts BP rating over oil spill

4th June 2010, Comments 0 comments

International ratings agency Standard and Poor's cut British oil giant BP's long-term rating from AA to AA- on Friday, the latest downgrade for the company over the Gulf of Mexico oil disaster.

"The downgrade reflects our opinion on the significant operational challenges (BP) continues to face to stem or contain the leak from one of its wells in the Gulf of Mexico," S&P credit analyst Simon Redmond said.

The agency, following BP downgrades by Fitch and Moody's Investor Service on Thursday, said "prolongation of the spill raises the likely range of longer-term remedial costs and compensation claims" the firm could face.

"We are lowering our long-term rating on BP to 'AA-' from 'AA' and placing our long- and short-term corporate credit ratings on CreditWatch negative," S&P said in a statement.

"The CreditWatch placement reflects our intention to reassess the longer-term impact on BP's business and financial risk profiles," it added.

The downgrade reflects the costs to BP in 2010 for capping the well and cleaning up; longer-term compensation, litigation or fines; potential increased regulation of the US offshore oil industry and the impact on BP's reputation.

"While the scope and consequences of the spill are still uncertain, this event is, in our opinion, not consistent with the scenario we had factored into the previous 'AA' rating, hence the downgrade," it said.

On Thursday, 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 -- meaning they could be lowered further.

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

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 a BP-leased rig.

On Friday, BP announced an apparent breakthrough in laborious efforts to control the worst ever US oil spill, saying a cap placed on a ruptured well pipe was working and should capture most of the oil.

The news came as US President Barack Obama was heading back to the stricken Gulf of Mexico region for his third visit since the crisis began.

BP chief executive Tony Hayward earlier warned that the cost of the spill for the company would be "severe."

© 2010 AFP

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