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David Prosser: BP breathes more easily – despite all the name-calling

Friday 07 January 2011 01:00 GMT
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Outlook Phew. That might sound a peculiar reaction to the damning Presidential Commission report into the Deepwater Horizon spill, but it's a fair summary of BP investors' response. After the report was published overnight, BP's shares opened up yesterday morning and stayed up for most of the day.

Why such an insouciant reaction to what could hardly have been a more aggressive report into BP's failure to put safety before cost in the Gulf of Mexico? Well, partly because the Commission is political and in the fevered corridors of Washington, a bit of playing to the gallery was to be expected. But more importantly because theconclusions of the report were such that it now looks as if BP's own assessment of the bill it will ultimately face for the Macondo disaster is going to prove realistic.

There is no certainty on that yet, mind you. The outcome of the law suit launched against BP by the US government last month – through which the fines and compensation the oil company must pay will be set – depends on the findings of a separate Department of Justice inquiry into the disaster. In theory, the fine alone could be as high as $21bn (£13bn).

So far BP has set a figure of $40bn as the likely ceiling on the cost of the accident. Of that, around half will go towards paying compensation to those affected in one way or another, while a further $11bn will pay the clean-up costs. That leaves only $9bn to pay the fine, so BP could still be substantially out of pocket.

However, this sort of penalty would only be payable if BP is found guilty of gross negligence. Yesterday's report, like BP's own inquiry into the accident, stopped short of that. It apportioned blame to a number of companies, including Halliburton and Transocean – the latter is also named in the government law suit against BP – rather than holding the British company solely responsible, and it did not meet the high bar required for a verdict of gross negligence.

Assuming the Department of Justice reaches similar conclusions, the fine BP is hit with might be as low as $5bn, depending on the official view on how many barrels of oil were actually spilt (BP's estimate is lower than that of some of the authorities), well within the company's margin for error.

In the eight months since the Deepwater Horizon accident, the hostility against BP in the US has cooled somewhat, at least at the highest levels. President Obama has already lifted the moratorium on deep water drilling, and while BP will not be the first company to recommence operations, a ban on it now looks unlikely.

In succeeding Tony Hayward as chief executive of BP, Bob Dudley will have expected to face some brickbats. But Mr Dudley and his fellow executives will be taking this report on the chin, while privately conceding this affair could have turned out so much worse.

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