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BP Facing Credit Downgrade, Steep Climb Back to Prominence

Written by SuperUser2.

As BP continues to wrestle with containing an oil spill in the Gulf of Mexico, the company faces a likely negative mark from at least one of the three major credit ratings agencies. But that might just be the tip of the iceberg for a company that would be characterized as cavalier on maintenance and safety issues in its operations in recent years.

Moody's Investors Service is the first of the ratings big three to chime in following BPs disastrous, ongoing oil spill stemming from an April 20 explosion that killed 11 oil rig workers. Moody's revised its credit outlook for Aa1 senior unsecured BP ratings to negative, from stable.

"Moody's action reflects the considerable uncertainty associated with the financial liabilities and clean-up costs that BP may incur as a result of the oil spill in the Gulf of Mexico," Moody's said in a May 5 statement. "It remains impossible at this stage to assess the full extent of the costs and business impact of this accident on BP's results."

NACM Economist Chris Kuehl, of Armada Corporate Intelligence, said the long-term impact of the spill should not hurt the U.S. economy in a sense of drastic price increases and supply concerns or even the oil industry itself. That is unless the incident helps permanently steer lawmakers far away from offshore drilling.

"You're certainly going to see a lot more scrutiny involved," said Kuehl. "But, at this moment, this is pretty much a one-company disaster." He added that even most local industries, including the shrimping and tourism sectors, largely won't be crushed because of the areas the spill affected most.

However, BP itself may find its future efforts to expand into new markets substantially stymied because the latest debacle will denigrate its negotiating strength relative to virtually all of its large competitors. That's not to mention what some already considered an ongoing spotty operational record thanks to problems with leaking pipelines, equipment and/or maintenance problems in areas including Canada, Alaska and Nigeria. Additionally, Kuehl notes BP largely has been "booted" from Ecuador and Venezuela, as well, though some of that was inspired by geopolitical reasons beyond the London-based company's control.

"If this was a one-off situation and they never had a problem before, that's one thing," he said of the Gulf spill. "But this is just the latest. It hasn't been a well-run company for a long time." Kuehl added that characterizing BP as a company operating in a cavalier manner on maintenance and safety "would be a very polite way of putting it."

Brian Shappell, NACM staff writer


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