Comment: BP’s US Gulf settlement is just the first stage

By TERRY MURDEN
Published on 16/11/2012 00:00

A settlement with the US authorities over the Gulf of Mexico oil spill will help BP move forward, though it will not draw a line under one of the worst episodes in the company’s history.

Numerous other federal, state and private actions are yet to be heard,
including claims under the Clean Water Act, potentially one of the heaviest liabilities. As such, the explosion at the Deepwater Horizon rig that left 11 workers dead and caused 200 million gallons of crude oil to spew out on to the Louisiana coast, will continue to haunt the company and overhang its shares.

Also damaged was BP’s green credentials which it had been nurturing as part of an industry-wide strategy that sought to convince sceptics that oil companies could exploit natural resources while protecting the environment. BP lost customers at the petrol pumps as the image of oil gushing out of the seabed flashed up on television screens for 87 days.

Its admission that it lied to the US Congress about the size of the spill just made matters worse. Management knew the game was up and the company has paid a heavy price, including its chief executive Tony Hayward. Two employees will face manslaughter charges. Since the blow-out in April 2010 the company has diverted its focus eastwards, extricating itself from a difficult position in Russia and forging a new partnership with state-owned Rosneft.

This has helped the shares whose rebound is important because of their value to pension schemes.

Borrows burrowing away to re-invent 3i

There was a time when 3i led practically every transaction in Scotland, or at least it seemed that way. The demise of cheap money helped put an end to all that and the private equity group has focused more on mending itself.

Half-year results yesterday again reiterated its restructuring targets and what progress is being made.

Simon Borrows became chief executive during the last full financial period and was handed the job of sorting out performance, with an emphasis on rebalancing its income and costs.

There were signs in the statement that he is getting on top of this, partly through office closures and reducing headcount to achieve annualised 
savings of £40 million in this financial year.

But he’s hamstrung by low levels of activity in the market, and private 
equity activity in particular, reflected in the sharp fall in new investment and in realisations from exits.

The interim dividend is held and it looks unlikely there will be much headroom in the short term, but debt is down and the absence of major surprises provides shareholders with hope that Borrows can fulfil his promise of making 2014 and 2015 the years of transition and delivery.

Killik rates the shares a buy, having noted a 29 per cent return since December last year and the scope for further improvement.


National insurance cut a diversionary attraction

Chancellor George Osborne is being offered a number of ideas for his forthcoming autumn statement and one that is gaining support is for a cut in national insurance. Justin King, the chief executive of Sainsbury’s, is the latest to refer to its as a “tax on jobs”.

Osborne will struggle to put a spin on some worrying forecasts so a boost for the jobs market would be useful diversion.