(Reuters) – BP and Anadarko Petroleum Corp, with a combined 90 percent stake in a ruptured Gulf of Mexico oil well, could handle up to $35 billion in costs from the spill, independent research service CreditSights said on Wednesday.
Assuming costs come in under $35 billion, stocks and bonds of the companies are attractive for long-term investors willing to take on significant risk, CreditSights analysts Brian Gibbons Jr and Jake Leiby said in a report.
BP’s shares plunged 13 percent on Tuesday after a “top kill” procedure failed to stop the oil spill, now the largest in U.S. history. The shares were up 0.9 percent on Wednesday as BP worked on a new plan to stem the massive oil spill.
The company’s chief executive, Tony Hayward, will tell investors this week that the cost of the cleanup can easily be absorbed by cash from operations, British newspaper the Daily Mail reported on Wednesday.
BP and its partners Anadarko and Mitsui & Co will be responsible for spill clean-up costs and related damages, according to their leasing contract with the U.S. Minerals Management Service and a drilling contract with Transocean, the analysts said.
A subsidiary of Japanese trading house Mitsui & Co, which CreditSights does not cover, owns the other 10 percent of the blown-out well.
Consensus estimates call for BP to have about $8.4 billion of free cash this year, while Anadarko will have about $3.5 billion, CreditSights said. The two companies could fund the remainder of their share of the spill costs by cutting capital spending and dividends, selling assets and using their credit lines, the research firm said.
The cost of insuring debt of BP and Anadarko hit record highs on Wednesday as concerns grew about the companies’ exposure to the spill.
Credit default swaps on BP jumped 87 basis points to 255 basis points, or $255,000 per year to insure $10 million of debt for five years, according to Markit Intraday. Transocean’s debt protection costs rose 183 basis points to 590 basis points.
Reporting by Dena Aubin and Karen Brettell, Editing by Leslie Adler; article appearing courtesy Reuters.