That’s that value wiped off BP’s market capitalisation following that oil spill in the Gulf of Mexico:
And seemingly the more analysts say the share price fall has been an overreaction, the further BP falls.
For example here’s Merrill Lynch on the spill from Friday:
If we assume the clean-up takes 6 months and include relief wells costs, total costs would be in the US$2bn range (US$100m per well + 180 days at US$10m/day). Even assuming additional civil damages similar to Exxon Valdez of US$2.5bn awarded against XOM in 2009, BP’s net costs for Macondo would approach US$3bn – just over half 1Q10 earnings. While the market may not be willing to assume such a scenario, given ongoing uncertainty, it, nevertheless, underscores that the hit on BP’s shares looks overdone.
And Citigroup:
Uncertainty on what the Macondo incident costs BP has driven the stock down, wiping $19n off BP’s market capitalisation. This seems disproportionate to the likely costs to the company, even assuming damages can be claimed. As an analogy, punitive damages against Exxon for the 1989 Valdez spillage were originally set at $5bn in 1994 but were reduced on appeal with Exxon agreeing to pay less than $1bn (including interest) in 2009.
Following the attempted rebuild of reputation after the 2005 Texas City refinery fire, even on a no fault basis this incident harms BP’s ‘brand’. However, we would be more cautious if BP was priced for success rather than at 7.5x 2011E earnings (a c30% discount to the sector) and a 6% yield on our estimates.
So, taking into account Tuesday’s fall, BP is trading on less than seven times 2011 earnings and still no one wants to buy.
Indeed, Monday’s trading in BP’s ADRs was a massive 157m shares and there was also heavy selling at the end of last week:
In total, Merrill Lynch estimates the damage inflicted on the companies directly involved in the Deepwater Horizon spill now stands at more than $31bn:
Yet the bank reckons the total clean up costs of the Exxon Valdez disaster in 1989, when a tanker ran aground and leaked 250,000 barrels of crude oil into the Prince William Sound near Alaska, was around $10bn in today’s dollars.
Another case of efficient markets?
Related links:
Oil leaks and energy security – Energy Source
Deepwater oil operators start to see effects of GoM spill – Energy Source
BP under pressure over oil spill costs – FT
BP under fire over containment efforts – FT