BP (BP) Disaster Could Cost $40K Per Barrel Spilled, Goldman Sachs Downgrades to Neutral
After incorporating the potential damages from the Gulf of Mexico spill, Goldman Sachs no longer sees upside in BP plc (NYSE: BP) beyond the sector and has lowered its rating from Buy to Neutral.
In its analysis on the cost of the spill, the firm said based on the 1989 Exxon Valdez spill of 250 kbls which cost Exxon (NYSE: XOM) US$3.8 billion, or $10 billion in current dollars, it will cost BP US$40,000 per barrel spilled, or US$10 bn per 250 kbls.
The firm is assuming the new containing cap can collect total of 12 kbls/d from a total spill of 15 kbls/d until the first relief well halts the oil flow 100 days after the initial spill. This implies a spill of 800 kbls and a liability of US$36 billion, or US$23 billion post-tax.
In its analysis, the firm assume BP will not pay a dividend for the next two quarters and will resume at US$10c per quarter from 4Q.
The firm's new price target of $52 (from $69) still offers 38% upside, but this is close to the median of the sector.
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