British Petroleum (BP), certainly lost money after the "Deepwater Horizon" oil rig literally saw a deepwater horizon after exploding in April, 2010. However, the loss of money doesn't necessarily put BP into the red, or so far in to the red that the company will become insolvent. This is especially so after a $7.8 billion shareholder dividend cut over 3 quarters.(1)
To ascertain whether British Petroleum PLC, is likely to go bankrupt or not is a matter of weighing losses against revenues and liabilities arising out of the Deepwater Horizon calamity. Some of the financial damages BP will have to absorb include a very large loss in equity capitalization in addition to liability claims and earnings losses.
To ascertain whether British Petroleum PLC, is likely to go bankrupt or not is a matter of weighing losses against revenues and liabilities arising out of the Deepwater Horizon calamity. Some of the financial damages BP will have to absorb include a very large loss in equity capitalization in addition to liability claims and earnings losses.
• BP's debt rating downgraded by Fitch and Moody's• Over $90 billion loss of market capitalization
• $20 Billion set aside for gulf relief
• Estimated $3.3 million 3 month revenue loss
• Potential uninsured losses costing billions more
With assets over $235 billion, and an average annual revenue over $66 billion the over $110 billion losses relating to declines in equity, increased liabilities, relief funds and revenue loss could be sustained without a bankruptcy.(3) However, with a lower debt rating and market capitalization, the company is not as leveraged as it once was which could impact future business operations and income.
In the best-case scenario, BP will be a bad year for shareholders with a public relations and financial scar that will impact share prices, potential insurance costs and to an extent revenue without a bankruptcy. Even with $40 billion in liability payments, BP could still continue its operations due to a high demand and relatively stable price for its oil products in addition to ample assets to cover losses costing billions of dollars while still potentially remaining profitable.
With approximate Q2, 2010 liabilities amounting to only 57 percent of total asset value, British Petroleum, PLC does have some financial leeway even with downgraded and potentially more expensive debt. British Petroleum PLC could quite possibly end the 2010 fiscal year with its first net loss in a while, but it is not unusual for large companies to stay operational with several years of tax-deductible losses on future profits either.
In a June 18, 2010 report by Laurel Brubaker Calkins and Margaret Cronin Fisk, in Bloomberg Business Week, a district judge is cited as stating the many class action lawsuits held against BP could indeed cost more than BP has accounted for.(4) This is further confirmed by Calkins and Fisk's reference of a more than $37 billion liability damage estimate from Credit Suisse.
If the oil spill continues to be a problem and the impending lawsuits and settlements that arise out of the Deepwater Horizon oil rig explosion continue to mount, the costs could far exceed $20 billion and potentially reach or surpass the widely publicized $75 billion liability cap set forth by the Oil Pollution Act of 1990. If BP's uninsured losses exceed the solvency threshold for the company to continue, then bankruptcy becomes a more real possibility. Until the actual damage costs are determined in their full scope, such a scenario can only be estimated as probable if damages significantly beyond $20 billion occur.
• $20 Billion set aside for gulf relief
• Estimated $3.3 million 3 month revenue loss
• Potential uninsured losses costing billions more
With assets over $235 billion, and an average annual revenue over $66 billion the over $110 billion losses relating to declines in equity, increased liabilities, relief funds and revenue loss could be sustained without a bankruptcy.(3) However, with a lower debt rating and market capitalization, the company is not as leveraged as it once was which could impact future business operations and income.
In the best-case scenario, BP will be a bad year for shareholders with a public relations and financial scar that will impact share prices, potential insurance costs and to an extent revenue without a bankruptcy. Even with $40 billion in liability payments, BP could still continue its operations due to a high demand and relatively stable price for its oil products in addition to ample assets to cover losses costing billions of dollars while still potentially remaining profitable.
With approximate Q2, 2010 liabilities amounting to only 57 percent of total asset value, British Petroleum, PLC does have some financial leeway even with downgraded and potentially more expensive debt. British Petroleum PLC could quite possibly end the 2010 fiscal year with its first net loss in a while, but it is not unusual for large companies to stay operational with several years of tax-deductible losses on future profits either.
In a June 18, 2010 report by Laurel Brubaker Calkins and Margaret Cronin Fisk, in Bloomberg Business Week, a district judge is cited as stating the many class action lawsuits held against BP could indeed cost more than BP has accounted for.(4) This is further confirmed by Calkins and Fisk's reference of a more than $37 billion liability damage estimate from Credit Suisse.
If the oil spill continues to be a problem and the impending lawsuits and settlements that arise out of the Deepwater Horizon oil rig explosion continue to mount, the costs could far exceed $20 billion and potentially reach or surpass the widely publicized $75 billion liability cap set forth by the Oil Pollution Act of 1990. If BP's uninsured losses exceed the solvency threshold for the company to continue, then bankruptcy becomes a more real possibility. Until the actual damage costs are determined in their full scope, such a scenario can only be estimated as probable if damages significantly beyond $20 billion occur.
Sources:
1. http://bit.ly/amW76p (Reuters)
2. http://bit.ly/afuHIx (Securities and Exchange Commission)
3. http://yhoo.it/afcGiJ (Yahoo Finance)
4. http://bit.ly/a4ZwIU (Bloomberg Business week)
5. http://bit.ly/bWr2tS (International Business Times)
:.
0 comments:
Post a Comment