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Experts Disagree On BP's Potential Cash Liability

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Experts Disagree On BP's Potential Cash Liability


Experts Disagree On BP's Potential Cash Liability

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Here's a multibillion dollar question: How much cash will�BP�need to deal with the colossal Golf of Mexico oil spill? There's no consensus on that. BP says it has significant flexibility to deal with the financial fallout from the spill, but it has yet to seal the gushing well. And if found guilty of a crime, BP's fines could reach many billions of dollars. NPR's Yuki Noguchi reports on the cash resources BP has at its disposal.

YUKI NOGUCHI: BP has at least one thing going for it.

Mr. BILL MANN (Mutual Fund Manager, The Motley Fool): It is a spectacular cash-generating business.

NOGUCHI: Bill Mann manages a mutual fund for The Motley Fool.

Last year, BP was the fourth most profitable company in the world. Its oil and gas businesses generated nearly $17 billion. BP's cash war chest now includes cash it has on hand, plus a huge line of credit. In all, BP has roughly $40 billion of cash it could theoretically access today.

But is that enough? Mann says yes. He says there's no realistic scenario where BP will be strapped for cash, even if the cleanup and liabilities from the Gulf spill keep piling up.

But just a few weeks ago, in mid-June, few investors took that view. BP's stock then was in virtual free fall.

Mr. MANN: The market seemed to believe that British Petroleum was really at risk of bankruptcy, and I don't think that they're now.

NOGUCHI: BP agreed to set aside $20 billion in a fund it would pay over several years. Even though that was not a cap, that move calmed investors. And Mann says he thinks BP won't end up paying much more than that.

However, Mann acknowledges there are significant X-factors. The relief wells could fail. Storms could spread oil further, and the company could face serious criminal charges and penalties.

Mr. MANN: I don't know where BP would possibly go to get a fair trial at this point.

(Soundbite of laughter)

NOGUCHI: But even if the penalties far exceed his estimates, Mann says, the crucial thing is that BP won't have to come up with this money immediately.

Mr. MANN: That's not happening in 2011, and it's not happening in 2012. It will be happening over decades.

NOGUCHI: But some believe BP will endure more fiscal pain. Higher-end estimates put BP's potential liabilities - for compensation, cleanup and penalties - far north of $100 billion.

Last week, BP ruled out the possibility of raising more money by issuing more shares. But then, according to some reports, the company's CEO, Tony Hayward, met with business partners in Abu Dhabi and discussed selling a stake in BP. That, if true, Philip Weiss says, would essentially be the same thing as selling new shares.

Mr. PHILIP WEISS (Argus Research): You can't just give somebody an ownership interest without giving them shares in exchange.

NOGUCHI: Weiss is an analyst with Argus Research. He says selling shares is a costly way for BP to raise more money.

Mr. WEISS: It would be another slap in the face to the existing shareholder base.

NOGUCHI: That shareholder base already had dividend payments canceled at least for the rest of this year. And because BP lost nearly half its market value since the accident, the company would essentially be selling itself now at a big discount.

BP spokesman Mark Salt said Hayward was in the Middle East to meet with business partners, but declined to comment on the nature of those discussions. Salt said BP plans to raise $10 billion by selling assets over the next year -a move analysts say could diminish the company's future revenue.

And BP hopes it won't have to bear the costs of the Gulf spill alone. It asked minority lessees of the downed well - Anadarko�and�Mitsui�- to pony up their share of the various costs. But Anadarko signaled it does not intend to pay. It says the explosion and spill are a result of BP's failures in drilling the well.

Yuki Noguchi, NPR News.

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