Markets

BP's $17 Billion Loss Marks a Good Start to the Post-Spill Era

By Conrad Aenlle

Updated on: July 28, 2010 / 10:20 PM EDT / MoneyWatch

The reaction on Wall Street to BP's first post-spill earnings report has been somewhat negative. The stock (BP) fell 2.4 percent in the two days after the release, closing Wednesday at $37.71.

Shareholders couldn't have been thrilled with the $32.2 billion charge against spill-related costs and the resulting $17 billion second-quarter loss. Still, the statement and accompanying presentation to analysts suggest that BP has established a sound blueprint that should help it get past the crisis and perhaps be a better company than it was before the spill occurred.

In their call with analysts, BP's incoming chief executive, Robert Dudley, and the man he is replacing, Tony Hayward, outlined a program of asset sales that they expect to total $25 billion to $30 billion over 18 months. BP has made a significant start, selling "upstream assets" (mainly gas fields) for $7 billion in cash to Apache Corp. (APA).

Whatever shortcomings may have led to the April 20 explosion that caused the Gulf of Mexico oil spill, BP is handling the aftermath, perhaps belatedly, with more surefootedness. It is doing the right thing and, perhaps just as important in a world full of lawyers, politicians, bankers and bloggers, it is showing that it is doing the right thing.

The asset sales and hefty charge against earnings are tangible, 10-digit signs of financial prudence and strength. They also serve to establish a ballpark figure for liability for the spill.

When BP's stock plunged into the mid-$20s in late June, the liability seemed open-ended and talk of bankruptcy was on the lips of many commentators. Now everyone's just quibbling over price - $30 billion, give or take.

The final total could be more if the most severe penalties are imposed and courts do not overturn them. It could be less if BP's partners in the well, Anadarko Petroleum (APC) and Mitsui Offshore Exploration, are persuaded or compelled to share the pain.

Assuming the total liability is in the $30 billion range, BP will have the cash to cover it, thanks to the asset sales, existing credit lines and retained earnings. The company's operations are still immensely profitable.

The asset sales will also make BP a smaller company - annual production is expected to be about 12 percent less after the disposals - but possibly a more focused company and, no doubt, a safer one for employees and the environment. With BP's market value still about $70 billion less than it was on April 20, the stock should have further scope to recover.