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  • dock_by_the_bay dock_by_the_bay May 3, 2010 3:29 PM Flag

    CNBC "Worst is over"

    Facts are fun: part three.

    BP's insurance to cushion impact of oil spill-Fitch
    NEW YORK, April 30 (Reuters) - Containment and cleanup costs of a massive oil spill in the Gulf of Mexico could top $3 billion, but financial impacts on BP Plc will be limited by the oil company's insurance, Fitch Ratings said on Friday.

    An oil drilling rig on lease to London-based BP (BP.L) (BP.N) exploded in flames on April 20 and collapsed two days later, leading to a massive oil spill that threatened to become the worst U.S. ecological disaster ever.

    The spreading oil has deepened fears of severe damage to fisheries, wildlife refuges and tourism in Louisiana, Mississippi, Alabama and Florida. Shrimp fishermen in Louisiana have filed a class action lawsuit against BP, accusing it of negligence.

    "The ultimate financial impact on BP will depend on how the environmental and economic impact develops when the spill reaches land," Fitch said in a statement.

    Costs could be more than $3 billion, depending on how long it takes to arrest the flow of oil into the Gulf, Jeffrey Woodruff, senior director in Fitch's energy team in London, said in the statement.

    Insurance will likely cover the majority of BP's costs, limiting rating pressure, Fitch said. It now rates BP AA-plus, just one notch below its top rating of AAA.

    There are precedents for $%^&sing the potential impacts, Fitch said. In the 1989 Exxon Valdez spill, when about 250,000 barrels of crude oil were spilled into Prince William Sound, Alaska, cleanup costs were an estimated $2 billion, Fitch said. Exxon was eventually found liable for actual damages of about $287 million and compensatory damages of about $500 million after a series of appeals spanning nearly 20 years, Fitch said.

    Exxon was originally $%^&sed punitive damages of $5 billion but a US Supreme Court ruling in 2003 imposed limits on punitive damages, helping reduce Exxon's liability, Fitch said.

    Assuming the BP oil spill is worse than the Exxon Valdez accident, as environmentalists are now claiming, and it takes an additional 60 to 90 days to drill a relief well and stop the leak, the total spill could be about 1 million barrels, Fitch said.

    Fitch said it will take rating action if necessary because of significant increases in BP's estimated environmental or litigation costs. (Reporting by Dena Aubin; Editing by Theodore d'Afflisio)

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