Boost For BP plc As Maximum Fine Is Reduced By Billions!

With the oil spill ruled smaller than feared, BP plc (LON: BP) is facing lower penalty.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In the latest twist in the Gulf of Mexico saga, the US Court in New Orleans has ruled that the 2010 Deepwater Horizon disaster led to a smaller oil spill than originally claimed — and that should mean a lower penalty for BP (LSE: BP) (NYSE: BP.US) than feared.

Contrary to the US government’s estimate of a spill of 4.09 million barrels, the judge put the volume at a significantly lower 3.19 million barrels.

The size of the spill itself and BP’s degree of negligence are the two main factors determining the level of penalties, and unfortunately for BP the court stuck to its earlier ruling that the company had been grossly negligent in the events that led up to the explosion — BP is still appealing that.

However, the latest ruling did decide that BP had not been grossly negligent in its efforts to control the subsequent spill.

The bottom line

So what might BP have to shell out now?

A Clean Water Act penalty up up to $17.6bn had been on the cards should the government’s claims have been upheld, but the new ruling should lower that to a maximum of $13.7bn (approximately £9bn). We won’t know the final sum until the third phase of the trial, which is due to commence on 20 January.

But the court will consider a number of factors, including BP’s efforts to minimize the effects of the spill and the success of those efforts, and so the “not grossly negligent” ruling on the aftermath will hopefully knock a bit off the total. BP itself says that it “believes that considering all the statutory penalty factors together weighs in favor of a penalty at the lower end of the statutory range“, so we’ll hopefully end up somewhere short of that possible $13.7bn.

What does this mean for shareholders? It’s definitely good news, but put into perspective the likely reduction of around $4bn in BP’s fine is relatively small compared to the total costs — BP has already spent or set aside more than $42bn for fines, compensation and other costs, and has sold off more than $39bn in assets to help pay for it.

Subdued reaction

And the market reaction has been subdued, with the shares up a modest 2.5% to 402p by mid-morning.

But perhaps the main benefit is that the uncertainty had been reduced, and if there’s one thing that institutional investors hate it’s uncertainty. BP is now a step closer to being able to put the disaster behind it (at least in financial terms) and get on with its business.

And then all BP will have to face is the possibility of two or three years of sub-$50 oil!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »