MAKE no mistake: there is no light at the end of the funnel yet. BP might have managed to siphon off half the leaking oil, but its costs – currently at $1.25bn – will continue to accumulate at a similar rate until August, when the relief well is completed. Only then will it become clear how much the containment stage has cost. After that, there will be fines, penalties, contributions to environmental schemes, claims and litigation. It is impossible to say how much this will cost, save for the obvious: an awful lot.
It’s true that BP tackles this disaster from a position of financial strength, with strong cash flow generation, low gearing of 19 per cent and a $72-a-barrel oil price (it breaks even at $60). It generated $7.7bn of cash in the first quarter of 2010 and $28bn in 2009 and, despite recent downgrades, will not struggle to raise debt.
Still, investors rightly hate uncertainty. And while its low share price – down 28 per cent over three months – might attract some bargain hunters, the truth is all BP can offer is unknowns. Will political pressure and clean-up costs force it to cut the dividend? Will increased safety standards weigh on future profitability? What will happen to the oil price in the case of further global economic woe? Too many questions. Prudent investors won’t wait for the answers.