BP's credit rating has been slashed by Fitch to just two notches above junk status, as the potential cost of the Gulf of Mexico oil spill continues to escalate.
Fitch cut its rating on BP from AA to BBB this morning, a day after US politicians demanded the company deposits $20bn (£13.58bn) in an escrow account to cover the cost of the Deepwater Horizon disaster.
The ratings agency said it was concerned that the balance between long-term and near-term cost payments would become "skewed much more heavily towards the near-term than previously anticipated" if the escrow account was created. Fitch also said it was concerned that BP will find it hard to access the capital markets for funding while the full cost of the oil leak remains unclear.
"In addition, Fitch would be surprised if BP did not suspend quarterly cash dividend payments until the operational and financial impact of the incident is clearer," it added.
Fitch's downgrade could make it more expensive for BP to borrow, especially if the other ratings agencies follow its lead. The company has around $5bn of cash reserves, and has spent more than $1.6bn fighting the spill.
It came just a few hours before the head of BP America appears before the House of Representatives committee on energy and commerce, along with four other big oil firms. ExxonMobil, Chevron, ConocoPhillips and Shell are expected to distance themselves from BP by insisting that their own methods are safer.
Careless and complacent?
The energy and commerce committee attacked BP last night by accusing it of taking dangerous shortcuts when drilling the well, which has been spewing oil into the Gulf of Mexico for 55 days.
The committee said its investigation into the disaster showed a series of mistakes were made in the weeks before the rig exploded.
"Time after time, it appears that BP made decisions that increased the risk of a blowout to save the company time or expense. If this is what happened, BP's carelessness and complacency have inflicted a heavy toll on the gulf, its inhabitants, and the workers on the rig," said Henry Waxman and Bart Stupak, the two top Democratic congressmen on the committee.
Waxman and Stupak made their claim in a letter to Tony Hayward, ahead of their showdown hearing with the BP chief executive on Thursday.
The committee has already held several hearings into the oil spill, and are convinced they have uncovered crucial evidence that BP staff chose "risky procedures".
"At the time of the blowout, the Macondo well was significantly behind schedule. This appears to have created pressure to take shortcuts to speed finishing the well," Waxman and Stupak wrote. They cited BP's decision to use a cheaper type of steel casing in the well, even though its own review had shown this would offer less protection against a gas leak.
The two congressmen also accused BP of ignoring advice from Halliburton, the contractor used to cement the well casing securely into the sea bed, that extra "centralisers" were needed to ensure that cementing was a success. They pointed to an email from a BP official that read: "Who cares, it's done, end of story, will probably be fine."
Later today, Barack Obama will address the American people on the disaster. He is expected to say that the US must break its dependence on fossil fuels, and also reiterate his insistence that BP pays full compensation to those affected by the leak.
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are Fitch one of those all knowing Credit Ratings Agencies that failed to warn about the collapse of some rather large Banks?
Who rates the credit raters?
if I were the boss of BP I would sack the PR guys since I seem to have beaten them to the 2nd comment. And if 7barrels is one of them then he really isn´t very good at all
How does this downgrade affect those responsible for this crisis (BP executives)?
How does this downgrade affect those not responsible for this crisis (BP employees in general, Joe Public, etc)?
Presumably the vast majority of BP executive "compensation" (what a lovely word in this context) is cash or equivalent, rather than shares, and in particular, shares they don't receive for N years ? (I could presumably check with the Annual Report, but statistically speaking, based on what other companies traditionally do, it'll be cash).
From what appears to be brewing in the US, BP will be very much cut down in size. It might emerge one half the size it was when the "spill" took place. The other half will go to compensate its victims.
Isn't capitalism wonderful, the markets will decide. Fitch is only repeating what the CDO market has already made clear so yes they are only restating the obvious
I'm still wondering how they came up with $34billion....
Where the f***k did they come up with that figure????!
Interesting piece of political judo from Obama.
Arguments about oil-dependence and (by proxy) wider environmental concerns will put the republican attack dogs on the back foot just as they seek to make capital from his mis-handling of the situation.
This is an environmental catastrophe but some good of it will come through closer scrutiny of industry standards. The increased costs of safe operations and disaster recovery insurance will impact on the price of oil. The impact on BP itself may feed through into oil prices. If oil is more expensive then the business case for investment in alternative energy will be bolstered.
Perhaps though it's a little soon to be looking for positives in what is a horrendous story of corporate carelessness.
That is also my hope.
BP stitched up by the yanks.
We should screw them - kick out the USAF. Close Menwith Hill. Burn 'The Gap' stores to the ground
Or wait until massive oil slicks start lapping the shores of Poole harbour, morecombe bay or eastern scotland? Oil on this scale is not concerned by national boundaries. It just depends who has to clean the s*** off their own doorsteps.
"crosby99
15 Jun 2010, 2:31PM
BP stitched up by the yanks.
We should screw them - kick out the USAF. Close Menwith Hill. Burn 'The Gap' stores to the ground"
smh
You should be deported to the Louisiana coast and sentenced to clean up duty , free of charge, for which BP will thank you.
Fitch Smitch.
I never know whether to read a Fitch related article or an I-Pad article these days on the Guardian.
Is this part of a huge US plot to destroy BP? Fitch is an US company.
The Russians have much to teach the Americans on how to handle the Anglo-Iranian Oil Company.
No, BP is plotting to destroy U.S. coastlines and related industries via environmental terrorism and massive pollution. And look how well they're doing!
My fellow Americans, be warned. Don't let this company into your state.
@multicolouredsocks
I think you'll find Fitch is actually majority French-owned. Nice try.
Even if BP survives one thing is certain: the company, after a short period to allow memories to fade, will be renamed and rebranded, new logo.
This is an absolute nightmare we are living , and we have no doubt, here in the United States, that BP will do its best to evade any financial accountability to our country and its people because of there MASSIVE f*@k up. We are scared, we are frustrated, we are heartbroken. Our wetlands are gone, our wildlife is dying in troves, our people can't feed their families and this company can not stop the oil from spewing. It's only a matter of time before coastal families need serious mental health aid, before suicides begin, before thousands of jobs are lost, before families lose there home, before a whole way of life on our coast is gone because of BP's "risky procedures." Our country is crying daily.
Crosby99 foolishly bought BP shares a week ago. That could possibly explain his tantrum.
And many of us cry with you. Believe me.
What we've seen and read is totally unforgivable.
However, edwardsad1 I think you'll find the people of Bhopal have been crying since 1984, and not a Brit near the catastrophe.
It's the model of corporate governance that's the problem: one goal, and one only: increase shareholder value and cut as many corners as you can, pay your workers as little as you can, trash the environment, and then leave, with a shrug of the corporate shoulders, and a loud WTF!
Let's not forget how the United States walked away from the Bhopal disaster in India. I am not suggesting for a moment that this is not a huge environmental catastrophe but on the 3rd of December, 1984 a United States company, Union Carbide India Ltd, presided over what is considered to be worst ever industrial catastrophe. I may be wrong but no US citizen has ever stood in court for this nor were suitable damages paid or anything like the American demands for compensation from BP for the damage to society and the economy of the affected area. In Bhopal there were many deaths directly related to this accident and the affects of the disaster are still felt to this day.
I do think that what has happened in the Gulf is deplorable and unforgiveable, BP should be made to pay to clean up, but the USA should also be made to pay for its accidents which have not occurred in their back yard but have had a terrible and continuing affect on populations. I suggest that before the USA continues banging the drum much louder they look at their own questionable record. Is this a case of not on our doorstep or does it not matter if it happens in a poor country?
Just out of curiosity Mr Obama - how much compensation has been paid in Bhopal and what ongoing support can the people affected by this disaster expect?
Signed - fed up of hearing lame ill educated American rhetoric
What right do the US government have to demand that BP suddenly stump up a massive amount of cash in one go?
... think I must of missed that somewhere along the line???