A festive spike, ratings agencies & Omani moves

It's the festive season alright and one to be particularly merry if you'd gone long on the price of black gold these past few weeks. The Brent forward month futures contract is back above US$110 per barrel.

Another (sigh!) breakout of hostilities in South Sudan, a very French strike at Total's refineries, positive US data and stunted movement at Libyan ports, have given the bulls plenty of fodder. It may be the merry season, but it's not the silly season and by that argument, the City traders cannot be blamed for reacting the way they have over the last fortnight. Let's face it – apart from the sudden escalation of events in South Sudan, the other three of the aforementioned events were in the brewing pot for a while. Only some pre-Christmas profit taking has prevented Brent from rising further.

Forget the traders, think of French motorists as three of Total's five refineries in the country are currently strike ridden. We are talking 339,000 barrels per day (bpd) at Gonfreville, 155,000 bpd at La Mede and another 119,000 bpd at Feyzin being offline for the moment – just in case you think the Oilholic is exaggerating a very French affair!

From a French affair, to a French forex analyst's thoughts – Société Générale's Sebastien Galy opines the Dutch disease is spreading. "Commodity boom of the last decade has left commodity producers with an overly expensive non-commodity sector and few of the emerging markets with a sticky inflation problem. Multiple central banks from the Reserve Bank of Australia, to Norges bank or the Bank of Canada have been busy trying to mitigate this problem by guiding down their currencies," he wrote in a note to clients.

Galy adds that the bearish Aussie dollar view was gaining traction, though the bearish Canadian dollar viewpoint hasn't got quite that many takers (yet!). One to watch out for in the New Year! In the wind down to year-end, Moody's and Fitch Ratings have taken some interesting 'crude' ratings actions over the last six weeks. Yours truly can't catalogue all, but here's a sample.

Recently, Moody's affirmed the A3 long-term issuer rating of Abu Dhabi National Energy Company (TAQA), the (P)A3 rating for TAQA's MYR3.5 billion sukuk  programme, the (P)A3 for TAQA's $9 billion global medium-term note programme, the A3 rated debt instruments and the P-2 short-term issuer rating. Baseline Credit Assessment was downgraded to ba2 from ba1; with a stable outlook. It also upgraded the issuer rating of Rosneft International Holdings Limited (RIHL; formerly TNK-BP International) to Baa1 from Baa2.

Going the other way, it changed Anadarko's rating outlook to developing from positive. It followed the December 12 release of an interim memorandum of opinion by the US Bankruptcy Court, Southern District of New York regarding the Tronox litigation.

The agency also downgraded the foreign currency bond rating and global local currency rating of PDVSA to Caa1 from B2 and B1, respectively, and maintained a negative outlook on the ratings. Additionally, it downgraded CITGO Petroleum's corporate family tating to B1 from Ba2; its Probability of Default rating to B1-PD from Ba2-PD; and its senior secured ratings on term loans, notes and industrial revenue bonds to B1, LGD3-43% from Ba2, LGD3-41%.

Moving on to Fitch Ratings, given what's afoot in Libya, it revised the Italy-based Libya-exposed ENI's outlook to negative from stable and affirmed its long-term Issuer Default Rating and senior unsecured rating at 'A+'. 

It also said delays to the production ramp-up at the Kashagan oil field in Kazakhstan were likely to hinder the performance of ENI's upstream strategy in 2014. Additionally, Fitch Ratings affirmed Shell's long-term Issuer Default Rating (IDR) at 'AA' with a stable outlook.

Moving away from ratings actions, BP's latest foray vindicates sentiments expressed by the Oilholic from Oman earlier this year. Last week, it signed a $16 billion deal with the Omanis to develop a shale gas project.

Oman's government, in its bid to ramp-up production, is widely thought to offer more action and generous terms to IOCs than they'd get anywhere else in the Middle East. By inking a 30-year gas production sharing and sales deal to develop the Khazzan tight gas project in central Oman, the oil major has landed a big one.

BP first won the concession in 2007. The much touted Block 61 sees a 60:40 stake split between BP and Oman Oil Company (E&P). The project aims to extract around 1 billion cubic feet (bcf) per day of gas. The first gas from the project is expected in late 2017 and BP is also hoping to pump around 25,000 bpd of light oil from the site.

The oil major's boss Bob Dudley, fresh from his Iraqi adventure, was on hand to note: "This enables BP to bring to Oman the experience it has built up in tight gas production over many decades."

Oman's total oil production, as of H1 2013, was around 944,200 bpd. As the country's ministers were cooing about the deal, the judiciary, with no sense of timing, put nine state officials and private sector executives on trial for charges of alleged taking or offering of bribes, in a widening onslaught on corruption in the sultanate's oil industry and related sectors.

Poor timing or not, Oman ought to be commended for trying to clean up its act. That's all for the moment folks! Have a Happy Christmas! Keep reading, keep it 'crude'!

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To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2013. Photo: Oil Rig © Cairn Energy.

‘Frackers’ & US coffers plus other crude matters

US Interior Secretary Sally Jewell should be a happy bunny this week say contacts in Houston town. In fact since morning, no fewer than nine have pointed this out to The Oilholic.

That is because Jewell's Interior Department has collected and disbursed over US$14.2 billion this week courtesy of a record royalties and fees windfall from oil & gas drilling on public land and US territorial waters for the fiscal year ending September 30. The figure is the second-highest collection on file and represents an annualised increase of $2 billion over the last fiscal year.

Fracking and horizontal drilling coupled with increasing interest in offshore E&P are being seen as the drivers. There is one caveat though, the figure does include proceeds of a bonus licensing bid in the Gulf of Mexico that took place in 2012, but was put on ledgers for 2013. In a statement, Jewell said, "The figure reflects significant energy production from public resources in the United States and serves as critical revenue stream for federal and state governments and tribal communities."

While the Interior Secretary stopped short of blessing the frackers, they are chuffed to bits and there is a fair bit of table thumping here. Let's also not forget that despite the frenetic pace of E&P activity in North Dakota, the state of Texas remains the country's largest producer of the crude stuff. That position is likely to be retained on account of fracking, enhanced oil recovery techniques being deployed, horizontal drilling and many established extraction sites that are chugging along nicely.

There is one positive domino effect which is largely going under the radar – Houston is leading the global race in the manufacture and shipping of oil & gas equipment manufacturing from blowout preventers to wellheads. Some of equipment can be loaded conventionally, but the rest – i.e. break bulk (heavy equipment which cannot be shipped in conventional containers) loading is also creating additional revenue streams in the state.

According to the Port of Houston, the facility handles nearly 70% of the US' entire break bulk cargo. Some here say jobs have more than doubled since 2005; Texas (along with North Dakota) also has the lowest unemployment rates in the country to brag about. Recent research conducted by McKinsey and IHS Global Insight came out bullish on the industry's long term potential for job creation – with both forecasting the creation of 1.7 million and 3.9 million jobs by 2020 and 2025 respectively.

Now that tells you something, especially as the US is poised to overtake Russia and Saudi Arabia and become the world's largest producer in barrels of oil equivalent terms. Strangely enough though, some of the majors such as Shell and BHP Billiton have apparently not got it right. The former has cut its shale production projections while the latter has put up half of its oil & gas land holdings right here in Texas as well as New Mexico for sale.

ExxonMobil's exit from shale exploration in Poland has also slightly dented the hypothesis of America exporting its nous on shale overseas. Some geologists have long warned that no one size fits all shale beds! Nonetheless, its early days yet on the knowledge export front at least.

Going beyond Texan borders, the positive impact of major upstream project start-ups on cash generation in the global integrated oil & gas industry in 2014-15, as well as continuing robust crude price conditions, have resulted in a change of outlook for the sector by Moody's to 'positive' from 'stable'. Up until this month, the ratings agency's outlook had been stable since September 2011.

Francois Lauras, senior credit officer in Moody's corporate finance group, said, "With crude prices set to remain robust, we expect that the start-up and ramp-up of major upstream projects over the next 12-18 months will benefit companies' production profiles and operating cash flow generation, and lead the industry's EBITDA to grow in the mid-to-high single digits year-on-year in 2014, albeit with more of the improvement showing in the latter part of the year."

"Downstream operations will remain under pressure, but EBITDA from refining and marketing operations will stabilise near their 2013 levels," he adds. Furthermore, Lauras feels that the global integrated oil and gas sector's capital investment in 2014 will remain close to its record levels of 2013.

The completion of the major upstream projects currently under construction will hold the key to the sector's return to positive free cash flow in the medium term. Integrated oil & gas companies will also continue to manage their asset portfolios actively and will execute further asset sales, supporting their financial profiles, Moody's concluded.

Finally, the Oilholic leaves you with glimpses of The Woodlands (see above, click to enlarge), a suburb of Houston, dedicated by none other than the late George Mitchell, a man credited for pioneering fracking.

Founded in 1974 as a largely residential area, today it houses commercial operations of many companies including those of a crude variety such as Anadarko, Baker Hughes and one GeoSouthern energy, a Blackstone Group backed company. It was one of the first to take a punt on the Eagle Ford shale prospection area and has just sold shale acreage to Devon Energy.

That's all for the moment from Houston folks! Keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.

To email: gaurav.sharma@oilholicssynonymous.com 

© Gaurav Sharma 2013. Photo 1: Pump Jacks, Perryton © Joel Sartore / National Geographic. Photo 2: Collage of The Woodlands, Texas, USA © Gaurav Sharma, November 2013.

BP’s settlement expensive but sound

As BP received the biggest criminal fine in US history to the tune of US$4.5 billion related to the 2010 Gulf of Mexico oil spill, the Oilholic quizzed City analysts over what they made of it. Overriding sentiment of market commentators was that while a move to settle criminal charges in this way was expensive for BP, it was also a sound one for the oil giant.

 

Beginning with what we know, according to the US Department of Justice (DoJ), BP has agreed to plead guilty to eleven felony counts of misconduct or neglect of ships officers relating to the loss of 11 lives, one misdemeanour count under the Clean Water Act, one misdemeanour count under the Migratory Bird Treaty Act and one felony count of obstruction of Congress.

 

Two BP workers - Robert Kaluza and Donald Vidrine - have been indicted on manslaughter charges and an ex-manager David Rainey charged with misleading Congress according to the Associated Press. The resolution is subject to US federal court approval. The DoJ will oversee BP handover US$4 billion, including a US$1.26 billion fine as well as payments to wildlife and science organisations.

 

BP will also pay US$525 million to the US SEC spread over three years. The figure caps the previous highest criminal fine imposed on pharmaceutical firm Pfizer of US$1.2 billion. City analysts believe BP needed this settlement so that it can now focus on defending itself against pending civil cases.

 

“It was an expensive, but necessary closure that BP needed on one legal fronts of several,” said one analyst. The 2010 Deepwater Horizon disaster killed 11 workers and released millions of barrels of crude into the Gulf of Mexico which took 87 days to plug.

 

The company is expected to make a final payment of US$860 million into the US$20 billion Gulf of Mexico compensation fund by the end of the year. BP’s internal investigation about the incident had noted that, “multiple companies, work teams and circumstances were involved over time.”

 

These companies included Transocean, Halliburton, Anadarko, Moex and Weatherford. BP has settled all claims with Anadarko and Moex, its co-owners of the oil well and contractor Weatherford. It received US$5.1 billion in cash settlements from the three firms which was put into the Gulf compensation fund.

 

BP has also reached a US$7.8 billion settlement with the Plaintiffs' Steering Committee, a group of lawyers representing victims of the spill. However, the company is yet to reach a settlement with Transocean, the owner of the Deepwater Horizon rig and engineering firm Halliburton. A civil trial that will determine negligence is due to begin in New Orleans in February 2013.

 

Jeffrey Woodruff, Senior Director at Fitch Ratings, felt that the settlement was a positive move but key areas of uncertainty remained. “Although the settlement removes another aspect of legal uncertainty, it does not address Clean Water Act claims, whose size cannot yet be determined. It is therefore too early for us to consider taking a rating action,” he added.

 

Fitch said in July, when revising the company's Outlook to Positive, that BP should be able to cover its remaining legal costs without impairing its financial profile, and that a comprehensive settlement of remaining liabilities for US$15 billion or less would support an upgrade.

 

Recent asset sales have also strengthened BP's credit profile. Last month, BP posted a third quarter underlying replacement cost profit, adjusted for non-operating items and fair value accounting effects, of US$5.2 billion. The figure is down from US$5.27 billion recorded in the corresponding quarter last year but up on this year's second quarter profit of US$3.7 billion.

 

“The company has realised US$35 billion of its US$38 billion targeted asset disposal programme at end the end of the third quarter of 2012. Proceeds from the sale of its 50% stake in TNK-BP in Russia will further improve its liquidity, supporting our view that the company can meet legal costs without impairing its profile,” Woodruff concluded.

 

Meanwhile, Moody’s noted that the credit rating and outlook for Transocean (currently Baa3 negative), which is yet to settle with BP, was unaffected by the recent development.

 

Stuart Miller, Moody's Senior Credit Officer, said, "The big elephant in the room for Transocean is its potential exposure to Clean Water Act fines and penalties as owner of the Deepwater Horizon rig. The recent agreement between BP and DoJ did not address the claims under the Act."

 

However, he felt that Transocean will ultimately settle with the DoJ, and there was a good chance that the amount may be manageable given the company’s current provision level and cash balances.

 

“But if gross negligence is proven, a very high legal standard, the settlement amount could result in payments by Transocean in excess of its current provision amount,” Miller concluded.

Plenty more to unfold in this saga but that’s all for the moment folks. Keep reading, keep it ‘crude’!

 

© Gaurav Sharma 2012. Gulf of Mexico spill containment area © BP Plc.

Out of its ‘Shell’ & into the ‘Cove’ plus ‘Providence’

Many analysts thought supermajor Royal Dutch Shell which was embroiled in a bidding war for London-listed Cove Energy for better parts of Q1 this year, would emerge out of its conservative shell and trump rival bids from Thailand’s PTTEP and a couple of interested parties from India outright.

In the end the deal was sealed by a conservative, albeit apparently successful, counter offer by Shell for the East Africa focussed E&P company. Having seen its offer for US$1.6 billion back in February trumped by PTTEP, the Anglo-Dutch major returned to the table with a bid of US$1.81 billion which matched rather than bettered the Thai state company’s offer.

On April 24, Cove’s directors accepted and recommended Shell's offer which the Oilholic thinks had much to do with Mozambique as a nation wanting Shell’s expertise as well as its investment. The possibility of a bid battle has now receded; more so as the agreement includes a break fee clause, under which Cove Energy will have to pay Shell US$18 million if it now accepts a rival bid.

An approval from the government of Mozambique is awaited as Shell eyes Cove’s main asset – an 8.5% stake in the Rovuma Offshore Area 1 in the country where Anadarko projects recoverable reserves of 30 tcf of natural gas. Shell as a company continues to be in good nick having recently announced a rise in Q1 profits while rival ExxonMobil saw its profits dip. On an annualised basis, Shell Q1 profits were up 11% at US$7.66 billion while in a strange coincidence Exxon’s profits fell 11% to US$9.45 billion. Both majors said oil prices would be ‘volatile’ in the coming months.

Talking about the luck of the Irish, London and Dublin listed Providence Resources’ quest for Black Gold off the coast of Ireland appears to be on song. The company, which dug Ireland’s first oil prospection well that might be anywhere near profitability, looks good for its 520pence plus share price on the AIM when the Oilholic last checked.

This accolade of Ireland’s first profitable oil well goes to Barryroe prospection field, some 70km off Cork, where a future full-scale extraction to the tune of nearly 4000 barrels per day – which makes a lot of commercial sense – is within relative touching distance. Providence Resources also holds drilling permits in Northern Ireland. Since Irish crude prospection has been riddled with disappointments, Providence deserves a pat on the back and its current share price for its effort.

Finally, the Oilholic is a bit miffed about being told by people that the UK now has the most expensive petrol price in the world, which it clearly does not. Yours truly knows that prices at the pump bite everyone, but we Brits aren’t the worst off.

However, to argue otherwise often results in farcically loud arguments especially with people who think the more inexpert they are, the more valid their opinion is! Thankfully, experts at Staveley Head – a provider of specialist insurance products – have some handy figures to back up the Oilholic which suggest that while UK is almost always on the list of the most expensive countries to buy petrol – it is not the most expensive (yet).

Click on their infographic - the Global Petrol Price Index (above right) - to compare the UK with the others. It would suggest that current price per litre is the highest in Norway, followed by Turkey, Netherlands, Italy and Greece. That’s all for the moment folks! Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: Shell Gas Station © Royal Dutch Shell. Infographic: Global Petrol Price Index © Staveley Head.

NZ spill, Anadarko & the crude weeks ahead

Starting with a note about a tragedy is not the Oilholic’s idea of a blog post but one that is unfolding off the coast of New Zealand is a deeply troubling one. A cargo ship – the Rena – which is stuck on a Kiwi reef since October 5 is presently spewing oil in that pristine part of the world. Local media and the BBC report large cracks in its hull with the ship listing badly with more than 350 tonnes of heavy fuel oil having spilled into the water so far killing over a 1,000 sea birds.

An even bigger source of worry is that with worsening weather conditions swells of up to 13ft are battering the ship. If it breaks apart, it will be one hell of mess as the Rena is carrying 1700 tonnes of heavy fuel and an additional 200 tonnes of diesel. A massive clean-up operation is presently underway led by Maritime New Zealand (MNZ), with the country’s army and thousands of volunteers. The Oilholic wishes them well.

Moving on to a corporate story about another oil spill in a different part of the world – BP’s Deepwater Horizon incident. It emerged this week that after months of initially denying responsibility, Anadarko Petroleum reached a US$4 billion settlement agreement with BP related to the 2010 Gulf of Mexico spill.

While no one, except for the legal eagles, will ever know what transpired behind closed doors, from initially denying any culpability for the incident to the settlement with BP, Anadarko’s move is largely being seen as a pragmatic one. In fact, ratings agency Moody’s believes the payment is “materially less” than their loss assumption of up to US$8 billion.

The agency has placed Anadarko Ba1 Corporate Family Rating and Ba1 senior unsecured notes ratings under review for upgrade with approximately US$13.5 billion of rated debt affected. Pete Speer, Moody's Vice President notes: "Our ratings review will focus on the extent of the company's residual liability exposures related to the Deepwater Horizon event and the potential for continued improvement in its fundamental credit profile in 2012."

Additionally, Anadarko will transfer its 25 per cent ownership interest in Macondo (or Mississippi Canyon block 252 aka MC252) to BP in exchange for BP releasing all its claims against Anadarko for all outstanding invoices billed to Anadarko to date and to forego future reimbursement for any future costs related to the event.

Concurrently, BP has agreed to fully indemnify Anadarko for damage claims arising under the Oil Pollution Act, claims for natural resource damages and associated damage assessment costs, and any claims arising under the relevant joint operating agreement. The settlement does not provide for indemnification by BP against fines and penalties (e.g., Clean Water Act), punitive damages or certain other claims, which Anadarko does not consider to be a material financial risk.

In another development, Kinder Morgan Kansas Inc. announced that it has reached an agreement to purchase 100 per cent of the stock of El Paso Corporation (KMK). The acquisition of El Paso will be funded with US$11.8 billion of new debt at the KMK level and US$9.6 billion of KMK equity and is expected to close in the first half of 2012. Upon closing, KMK will be collapsed into Kinder Morgan Inc. (KMI).

Finally coming on to the crude price, there hasn’t been much movement on a week over week basis using both leading benchmarks. The reason is that last week’s gains were almost entirely wiped out, Monday to Monday. While Brent retreated from US$110 level to just above US$108 level; WTI fell from US$88 to US$85 in Tuesday intraday trading, which is pretty much where they were at the start of last week.

Same old reasons can be assigned too, i.e. Eurozone worries, perceived economic cooling in the Far East and heavy losses on equity markets. Myrto Sokou of Sucden Financial Research feels it is all about the Eurozone and how the markets will digest the news that there is no clear solution yet about Eurozone’s debt issues, while the current political and economic conditions in the region look very uncertain. “The sharp reality that the problems in the region are systemic is likely to weigh heavily on the markets in the coming weeks,” Sokou concludes and the Oilholic concurs.

Finally, to end on a happy note, on October 13 the Oilholic joined the great and the good of British journalism for the 2011 London Press Club Ball in aid of the Journalists’ Charity. On a great evening, one got to meet many old contacts and made yet newer ones in the backdrop of the London Natural History Museum.

The usual pomp, razz, wining, dining, dancing and networking aside, there was a very serious charity auction. The Oilholic (see above) tried rather unsuccessfully to bid for a year’s ride in an new Jaguar model but was outbid by much more serious punters all in it for a good cause. He also (sigh!) came seriously close to bagging a free flight to New York in a charity raffle – but alas it wasn’t to be! Oh well, there’s always a next time.

© Gaurav Sharma 2011. Photo 1: Macondo clean-up operation © BP. Photo 2: (L to R) 2011 London Press Club Ball, the dance floor and moi at the event © Gaurav Sharma, Oct 13, 2011

IEA, OPEC & a few more bits on BP

It has been a month of quite a few interesting reports and comments, but first and as usual - a word on pricing. Both Brent crude oil and WTI futures have partially retreated from the highs seen last month, especially in case of the latter. That’s despite the Libyan situation showing no signs of a resolution and its oil minister Shukri Ghanem either having defected or running a secret mission for Col. Gaddafi depending on which news source you rely on! (Graph 1: Historical average annual oil prices. Click on graph to enlarge.)

Either way, the 159th OPEC meeting in Vienna which the Oilholic will be attending in a few weeks promises to be an interesting one; we’re not just talking production quotas here. Iranian President Mahmoud Ahmadinejad is also expected to be in Austrian capital – so it should be fun. The market undoubtedly still craves and will continue to crave the quality of crude that Libya exports but other factors are now at play; despite whatever Gaddafi may or may not be playing at.

Contextualising the Libyan situation, Société Générale CIB analyst Jesper Dannesboe notes that Cushing (Oklahoma), the physical delivery point for WTI crude oil, has recently been oversupplied resulting in contango at the very front end of the WTI forward curve.

“This situation is likely to persist until at least mid-2012 as higher supply to Cushing from Canadian oil sands and from North Dakota should result in high Cushing stocks as new pipelines from Cushing to the coast will not be ready until late 2012 at the earliest. This makes it attractive to put on WTI time spreads further out the forward curve at backwardation as they should over time roll into contango,” he wrote in a note to clients.

Dannesboe also observes that while the entire Brent crude oil forward price curve is currently in backwardation (i.e. near-dated prices higher than further-dated prices) out to about 2017, the front-end of the WTI crude oil forward price curve has remained in contango.

The Brent forward curve flipped from contango to backwardation in late February as a result of the unrest in the Middle East & North Africa (MENA). However, contango at the front-end of the WTI forward curve has persisted because WTI's physical delivery point, Cushing (US midcontinent), has remained oversupplied despite a generally tight global market for sweet crude as a result of the loss of Libyan exports, he concludes.

Meanwhile, ahead of the OPEC meeting, the International Energy Agency (IEA) called for “action” from oil producers that will help avoid the negative global economic consequences which a further sharp market tightening could cause. Its governing board meeting last Thursday expressed “serious concern” that there are growing signs the rise in oil prices since September is affecting the economic recovery. As ever, the IEA said it stood ready to work with producers as well as non-member consumers.

The Oilholic also recently had the pleasure of reading a Fitch Ratings report, authored earlier this month in wake of the Libyan situation, which notes that the airline sector is by far the most vulnerable to rising oil and gas prices of all corporate sectors in the EMEA region given the heavy weight of fuel costs in operating cost structures (20%-30%), execution risks from companies' use of hedging instruments to mitigate their fuel exposure and fierce industry competition. (Graph 2: Price movement - Jet fuel vs. Brent oil. Click on graph to enlarge)

Erwin van Lumich, a Managing Director in Fitch's corporate departments, said, "The gap between the jet fuel price curve and the Brent curve narrowed to approximately 13% during 2010, with airlines in emerging markets generally most exposed to fuel price fluctuations due to a lack of market development for fuel hedging."

It gives food for thought that a temporary impact of the Icelandic volcanic ash can send jitters down the spine of airline investors but the jet fuel pricing spread, airlines’ hedging techniques (or the lack of it) and how it might impact operating margins is mostly raised at their AGMs. Where there are losers, there are bound to be winners but Fitch notes that the ratings of companies in the extractive industries are not expected to benefit from the price increases as the agency uses a mid-cycle pricing approach to avoid cyclical price changes having an impact on ratings. At this stage, Fitch does not anticipate a revision to its mid-cycle price deck to an extent that it would result in rating changes.

Finally, a couple of things about BP. To begin with, BP’s share swap deal with Rosneft failing to meet the May 16th deadline does not imply by default that that deal would not happen. In wake of the objection of AAR – its TNK-BP joint venture partner – there are still issues to be resolved and they will be in the fullness of time contrary to reports on the deal’s demise. A source close to the negotiations (at AAR not Rosneft) says talks are continuing.

Continuing with BP, it finally got recognition that blame for the Macondo incident is not exclusively its. Mitsui (which holds 10% of the well’s licence) and Anadarko (25%) had both blamed accident on BP’s negligence, refusing to pay or bear costs. However, Mitsui finally agreed to settle claims relating to the disaster with BP. It now agrees with BP that it was the result of oversights and mistakes by multiple parties. Undoubtedly, the pressure will now be on Anadarko to settle with BP.

According to US government figures, BP has paid out US$20.8 billion. It has invoiced Mitsui for approximately US$2.0 billion with the Japanese company expected to pay half of that at the present moment in time. A US trial on limitation of liabilities is expected to rule on the issue of gross negligence by parties concerned sometime over Q1 2012. Watch this space!

© Gaurav Sharma 2011. Graphics © Fitch Ratings, May 2011