DBRS Comments on BP’s $4.5 Billion Settlement of Spill-Related Criminal and Securities Claims by U.S. Government

DBRS notes that BP p.l.c. (BP or the Company, rated “A” with a Stable trend) has today announced that it has reached an agreement with the United States government, subject to court approval, to resolve all federal criminal charges and all claims by the Securities and Exchange Commission (SEC) against the Company stemming from the April 2010 Deepwater Horizon accident.

BP has agreed to pay fines of approximately $4.5 billion in aggregate, consisting of:
-- $4 billion (including $1.256 billion in criminal fines) for resolution of all criminal claims with the U.S. Department of Justice, to be paid in installments over the next five years.
-- A $525 million civil penalty for resolution of all securities claims with the SEC, to be paid over the next three years.
-- BP has also agreed to a term of five years’ probation.

In DBRS’s view, the proposed agreement is reasonable. The fines and terms of payment are fundable with BP’s current liquidity and operating cash flow, with no material impact expected on the Company’s financial profile. In addition, in conjunction with the previously announced agreement with the Plaintiff’s Steering Committee (March 3, 2012) to settle the substantial majority of legitimate economic loss and medical claims (estimated at $7.8 billion, which is expected to be funded through the $20 billion Spill trust fund), substantial uncertainty with regard to potential future claims and fines will be removed upon court approval of today’s agreement.

DBRS does note that considerable uncertainty still exists, however, as the above-noted agreements do not provide for the remaining civil claims, including a federal negligence case under the U.S. Clean Water Act. DBRS estimates that fines for the remaining civil claims could range from $3.5 billion (if BP is found negligent) to as much as $21 billion for the much more serious charge of gross negligence.

DBRS will continue to monitor the proceedings relating to the remaining civil claims to determine any potential credit impact on BP.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Oil and Gas Companies, which can be found on our website under Methodologies.