BP is leading the FTSE 100 higher after one of its partners involved in the Gulf of Mexico oil spill agreed to pay the company $1.1bn towards the cost of the disaster.
Moex, a subsidiary of Mitsui, has a 10% interest in the Macondo well and has now agreed with BP and a presidential commission that the accident was due to a number of factors, including the safety management systems of Transocean.
BP will immediately put the $1.1bn into the $20bn trust it established to meet claims relating to the disaster. BP has not yet decided whether to now releases some of its provisions. The two sides have also settled mutual claims against each other.
This comes as a piece of good news for BP at a time when it is spending much management time struggling to settle disputes with its partners in Russia. BP chief executive Bob Dudley said:
We call on the other parties involved in the Macondo well to follow the lead of the Moex and Mitsui parties.
Analysts believe the settlement could indeed put pressure on others involved in the well. Richard Griffith at Evolution Securities said:
Anadarko (25%), BP's other partner in the Macondo licence is likely to come under pressure to settle as well now. Perhaps more significantly is the broader recognition that Transocean's safety management systems on the rig were deficient and where this could lead BP and its licence partners to pursue Transocean for compensation thus reducing the overall size of the liability net to BP.
In our target price for BP we had assumed a $25bn to $30bn gross liability to BP. To date BP has paid out $20.7bn pre-tax, pre-partner recovery. Therefore, our estimate of BP's liabilities could start to fall therefore boosting the valuation case further.
Separately analysts at Investec have issued a note calling for the company to split itself into three businesses. Stuart Joyner said:
Today we call for a radical, full demerger of BP to close the acute discount to our view of fair value and upgrade from hold to buy with an unchanged target price of 550p. We think investors should pressure BP to accelerateLeaving that aside, BP shares have jumped 16.35p to 464.25p on the Macondo news, putting them at the top of the FTSE 100 risers and adding nearly 12 points to the index. The FTSE is currently 45.32 points higher at 6001.31, heading for its third day of gains in a row.
the non-core disposals/BRIC entry strategy. If BP does not close the discount, we think the Russians, Chinese or Indians will look hard at the sub 6 times multiple.
We think BP could regain its reputation as the industry thought leader (and the double digit multiple that went with it) by splitting the company in three: a US business (let's call it 'Amoco') listed in New York and containing its US refining and increasingly gassy exploration and production businesses; a UK plus mature market E&P business listed in London ('Britoil'); and most importantly, a growth, BRIC-focused integrated ('BRIC Petroleum' or BP for short) listed in London and Mumbai/Hong Kong. At 10 times forward earnings, our blue sky valuation for BP would
be 750p a share.
Miners, once more are proving another big influence on the index, with Kazakhmys climbing 32p to �12.69 as copper edges higher. Glencore has edged up 3p to 533p in the commodity trader's second day of conditional dealings. It listed at 530p.
ITV has added another 2p to 71.7p after yesterday's positive note from Bernstein Research, while Scottish and Southern Energy is up 3p at �13.30 following its annual figures.
Among the mid-caps, Mitchells & Butlers results have been less well received, with its shares down 17.5p at 318.9p. But Micro Focus International has climbed 27.6p to 397.4p on hopes of a private equity bid battle for the IT business.
Lower down the market Medicsight continued yesterday's gains, up 1.9p to 10p, as did Parseq, 28% better at 7.5p.
Source: http://www.guardian.co.uk/business/marketforceslive/2011/may/20/bp-jumps-as-gulf-partner-pays-up
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