Crude oil juggernaut British Petroleum (BP) is still reeling from the 2010 Deepwater Horizon spill that made headlines in early 2010. Last week, the company agreed to accept criminal responsibility for the disaster that took the lives of 11 workers and “to pay $4.5 billion in fines and restitution, the biggest penalty ever levied by the U.S. Justice Department” writes Tom Fowler. But the troubles will not end there, as the company will appear before a federal judge in February to face what could be an astronomical financial penalty [for more crude oil news and analysis subscribe to our free newsletter].
The U.S. government is pursuing a civil case against the oil giant to prove that it committed gross negligence, as it is alleged that key safety tests were misread and proper precautions were not taken. If convicted to the fullest extent, BP could owe another $20 billion, though it is more likely that it would fall around the $10 billion range after negotiations.
BP Since the Spill
BP’s stock had been recovering from the U.S. recession and had made it back to $60/share – still nowhere near its pre-recession $75/share. But the spill wreaked havoc, as intense selling pressures quickly pushed the share price down to its low of $24.84 on June 25, a drop of nearly 60%. The stock now sits around $40, as it has been able to slowly work its way higher. But an additional fine of $10 billion could put a damper on BP’s run [see also Can Oil Fix U.S. Unemployment?].
The initial claims that the company accepted last Thursday had little impact on the stock, as it seemed to be priced in, but a $10-$20 billion fine would likely send the share price lower. The firm currently has about $16 billion in cash, but another $50 billion in debt, which could be worrisome should negotiations go poorly in 2013. This will be a good stock to watch in the coming months, as investors may want to position themselves for the inevitable record fine that will hit the firm next year. This could also present a good buying opportunity for those who like the stock long-term, as a temporary dip could prove to be a nice entering point.
Disclosure: Long BP.