BP shares dipped 2 percent Tuesday after the company announced plans to shed more assets to pay for the Gulf of Mexico oil spill.
The British oil giant intends sell up to $30 billion of assets during the next 18 months, a plan that concerned some analysts. Selling assets up front will allow BP to handle huge cleanup costs without taking on more debt, but it also reduces future cash flows.
The asset sale was announced as BP said it lost a record $17 billion in the second quarter and confirmed that embattled CEO Tony Hayward would be replaced by American Bob Dudley.
Investors assessing BP's overall liability for the spill got some clarity from BP's earnings report, along with more uncertainty. BP set aside $32.2 billion to cover spill costs, including "future costs which can be estimated reliably at this time," while acknowledging that certain costs can't yet be predicted.
BP seems to be conservative in its estimate for the costs of plugging its well and cleaning up the Gulf coast, Oppenheimer & Co. analyst Fadel Gheit said. Gheit predicts BP will eventually pay between $30 billion and $60 billion for the spill.
The amount BP has set aside includes $2.9 billion in cleanup costs as of June 30 and another $20 billion for a fund to pay for damages to businesses and individuals. That leaves $9.3 billion for penalties under the Clean Water Act, legal expenses and other costs.
At least $1 billion has been used for cleanup costs in July. And a large chunk could go towards federal fines.
The federal government is expected to charge BP $1,100 for every barrel of oil spilled into the sea. With up to 4.4 million barrels already spilled, the total fine could reach $4.8 billion.
But if BP is deemed grossly negligent by federal authorities, the fines could quadruple. BP's partners in the failed well, Anadarko Petroleum Corp. and MOEX 2007 LLC, also would be excused from paying their share of the damages if BP were deemed grossly negligent by an arbitrator. BP has billed them $1.43 billion so far, but they've withheld payment.
Raymond James analyst Pavel Molchanov said the $32 billion could be just the beginning. Using Exxon Mobil's expenses following the Valdez spill as a model, Molchanov estimates that BP's damages and cleanup cost could be about $46 billion.
Company shares dropped 61 cents, or about 1.6 percent, to $38.04 in afternoon trading.
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