Joe Weisenthal | Business Insider
Analysts at Bank of America/Merrill Lynch are out with a new, thorough report on BP and the effect of the Deepwater Horizon disaster. There’s a lot in this that we’ll keep mining through, but we thought we’d present what the firm sees as its most conservative base-case scenario for costs.
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Base case summary: US$28bn
While dealing with imperfect information we have endeavoured to create a framework to form a reasonable basis for making assumptions on the potential cost of this disaster – and provide a basis for examination of the share price moves that has wiped an estimated ~US$80bn from the stocks involved, after adjusting for wider market weakness.
Our attempts to find reasonable basis are clearly substantially below that level and to recap we assume:
Clean up and remediation costs based on industry data and BP’s run rate costs to date could reasonably be US$6bn.
Compensatory damages of US$11bn framed by an adjusted view of the HRI assessment and a sense check on the potential impact on the regional economies of the four states potentially impacted. Punitive damages, in a 1:1 ratio with the compensatory claims in line with the Supreme Court Judgment on Exxon Valdez, and hence an additional US$11bn.
Civil damages applied under the Clean Water Act, assumed as a general discharge of ~1 million boe, of US$1.1bn.
In light of events to date, and pulling together a framework we believe has reasonable basis, this becomes our base case and one we believe is conservative.
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