S&P Upgrades BP Outlook to Positive Despite Macondo Payments

Standard & Poor's (S&P) has revised its financial outlook for oil and gas major BP to positive, despite ongoing material payments related to the 2010 Macondo oil spill in the Gulf of Mexico, S&P reported Tuesday.

While the material liabilities related to Macondo remain unknown, S&P revised the outlook on BP from stable and affirmed its 'A/A-1' long and short-term corporate credit ratings on BP.

S&P said in a report that the risk of near-term payments related to the Gulf of Mexico exceeds the amounts S&P assumed in its base-case credit scenario as low. S&P's base case assumes that fines under the U.S. Clean Water Act and Oil Pollution Act could run between $5 billion and $20 billion, on top of the approximately $35 billion already paid by BP.

"We see annual payments likely declining over 2012 and 2013, while asset sales and medium-term production growth should help to improve the group's credit metrics," said S&P in a statement on Tuesday.

S&P forecasts funds from operations (FFO) of approximately $25 billion to $27 billion in 2012, despite Gulf of Mexico-related cash payouts of about $5 billion.

"Under our base-case Brent oil price assumptions of $100 per barrel in the remainder of 2012, falling to $90/bbl in 2013, FFO could strengthen modestly to the upper end of the aforementioned range in 2013," said S&P.

BP has completed about $22 billion of planned asset disposals of $38 billion by year-end 2013, which will help reduce the group's net debt to net debt plus equity to the 10 percent and 20 percent range that management has indicated.

S&P commented that it could upgrade BP in the next two years if the group's credit metrics continue to strengthen following the final payments related to the Macondo oil spill.

"An upgrade would also be supported by sustained strong operating performances in the future, including a return to production growth in core provinces such as the U.S. and UK, as well as the sustained strengthening of BP's operating and safety track record," S&P said

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com

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