London - Oil giant BP
will likely agree to pay the US Department of Justice $20bn to $25bn next month to
settle all civil and criminal charges around the Deepwater Horizon rig blast
and Gulf of Mexico oil spill, a leading industry analyst predicted on Thursday.
Martijn Rats, head of European oil research at Morgan
Stanley, said in a research note that he saw a 70% to 80% chance that the two sides would agree a deal
sometime between BP's full-year results on February 7, and the scheduled start
of legal hearings in New Orleans on February 27.
BP sources have told Reuters that talks are ongoing with the
Department of Justice about a possible settlement and that the London-based
company's board has shifted to weekly meetings to discuss progress.
CEO Bob Dudley has previously said BP would like
to settle, although not at any price. When asked about the matter by reporters
on Wednesday, he declined to make any comment, saying it was a sensitive time
to be discussing it.
When contacted by Reuters, BP had no comment to make over
the likelihood or size of a settlement.
BP senses the US administration would like to settle the
matter not least because it is a US presidential election year, the sources
said, but any outcome is still seen as uncertain.
The estimated level of settlement in the Morgan Stanley note
- the most detailed analysis Reuters has seen on the potential cost of the
spill - is much higher than other analysts have predicted, and about double
the amount BP has taken a provision for.
Senior company sources last year told Reuters the
company was prepared for a massive payout. One source predicted BP would offer
"the mother of all settlements".
Another said the settlement would likely be the
second-largest in US legal history, putting it between the $206bn the
tobacco industry agreed to pay US states for treating smoking-related
illnesses and the $7.2bn banks agreed to pay to settle litigation related
to Enron's collapse.
BP has the money to pay a $20bn to $25bn settlement - it is
sitting on cash pile of more than $20bn and has billions of dollars worth
of assets on the block as part of its restructuring.
Nonetheless, Morgan Stanley predicts the larger-than-
expected size of the payout will weigh on BP's shares. It rates the shares
"underweight" and has a target price of 435 pence, against a
Wednesday close of 481p.
The shares traded down 0.6% at 09:05 BT, against
a flat STOXX Europe 600 Oil and Gas index.
BP investors are expecting the company to announce a
dividend hike at its full-year results, after Dudley said late last year
it had reached a turning point after the oil spill and was now returning to
A big settlement would limit BP's ability to lift the
Morgan Stanley believes the DoJ deal will cover all criminal
and civil proceedings being pursued by the government against BP under the
Clean Water Act, Alternative Fines Act, other laws and BP's obligation to make
good any natural resources damages.