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Raymond James equity research analyst Pavel Molchanov breaks down the latest on the BP oil spill settlement.
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It -- a day of reckoning delayed the trial over BP's deep water horizon oil spill initially set to start today now pushed back a week.
A settlement talks are progressing the gulf rig explosion killed.
Eleven people resulted in five million barrels of oil gushing into the Gulf of Mexico.
Now investors are taken this on the negotiations as a positive -- right now BP stock up by 73 cents 4772.
Meet the analysts hobble will turn up as Raymond James senior vice president equity research analyst and he joins me nonpublic do want to talk to I know the recently sat down.
And spoke with a lot of executives -- the CEO Bob Dudley has said that they're prepared to saddle.
If they can do so on a fair reasonable term a do you expect a settlement to complement.
I think that there that there will be more settlements let's remember they already settled last year with four of the companies involved in the spill.
Anadarko and Mitsui both of the other partners in the well itself plus Weatherford -- -- two of the oil service contractors.
But look at -- a lot of parties to be civil trial that was a she sets both to start today in addition to -- a whole group of private -- -- you know fishermen hotel owners and so one.
-- the GUS Justice Department's civil division is involved along with two of the other service contractors Transocean and Halliburton.
So I do expect that there will be additional settlements but I would not expect a single.
Overarching settlement that would keep the trial from.
-- forward I think that the trial will start most likely next week may be with fewer plaintiffs than non what we have currently.
OK well let's talk about that -- up a list of Clinton's hair because it has long when you got the federal government the states -- Louisiana the state of Alabama.
Thousands of businesses involved here and there's two different sides to this hobble how concerned when you met with executives of BP how concerned were today.
That if indeed this does go to trial that they're looking at 2013.
2014.
As the end game and then -- talk about the financials obvious.
While I know 2013 or fourteen seems like a long way off but look let's put things in contacts after the Exxon Valdez spill in Alaska in 1989.
It took nineteen years nineteen years to -- the litigation process wrapped up those it was only -- four years ago.
But the Supreme Court ruled on that case I don't think -- take nineteen years.
In in this scenario to to be clear by if for example a trial were to last until 2014.
As this you know very realistic.
That would still be -- only four years now from the time of the spell 14.
As long as as the Valdez process.
And look at the complexity of the litigation remember this was the Gulf Coast.
With far more parties affected then.
What happened back in not 89 Alaska we make states and an extremely intricate.
And complex -- litigation process as I said if BP world's settled perhaps with one.
Or more of the plaintiffs remaining in the case ice still suspect.
That the rest of the parties would want to move forward with the trial.
OK let me ask you about -- BP has set aside 43 billion dollars.
To deal -- the claims coming against them I'm curious right now you have a strong -- on the stock.
I'm curious at what point do you need to reevaluate.
Your position on the stock and what -- tell your clients would it be next week are gonna wait a couple of months to see how the salt plays out what's your position now.
-- -- Certainly a settlement would actually be an incremental positive look one of the reasons that BP SI -- Incredibly cheap stock trading at about seven times earnings right now relieve the cheapest in the peer group.
Is that that legal overhang that -- -- com varying its valuation if they -- two to continue to saddle even off these or partial settlements with other parties.
I absolutely think that there is room for that multiple to expand I would correct one thing you said the 43 billion is not.
All for the for the liabilities that includes that cost that BP.
Already paid two years ago or almost two years ago to clean -- the spill and and contain the damage.
-- but look there is a twenty billion dollar fund that they have set aside.
For.
All -- -- private sector claims they can use that fund to copper.
Legal settlements so for example if they -- to -- odd you know tomorrow a hypothetically with.
Perhaps the plaintiffs' steering committee they could use that twenty billion dollar fund that they've already paid for substantially.
To not pay out any settlements that they reach.
OK let me ask you look at before I let you go the stock is at right now still about 22% below.
Those pre expel levels -- you in your -- your clients said look there are a lot of other businesses that are actually popping right now in a good way.
For BP in particular.
Looking at other -- activity that they currently have gobbling I mean they of all people -- actually been jumping in and actually.
Opening up a new drilling sites so for the long term investor.
What would you tell them about BP today.
Well first -- -- cheap stock as a -- seven times earnings.
-- name in the peer group again once the litigation -- the legal overhang begins to lift.
I think that multiple has room to go higher and as you said Carol lot of operational things that are happening right at the company.
Outside of this legal process so.
-- F five rigs drilling in the Gulf of Mexico today that's gonna ramp up to -- by the end of the year.
That's some very interesting overseas exploration programs in countries like -- BI and Australia in India.
All of those are gonna drive value creation for the company that's not to say that the legal process does not matter of course it matters a great deal especially for the -- for the multiple.
By you know that the point as for a company that for the last two years was playing defense.
With regard to its capital spending.
And its drilling activity is now moving to playing offense and and I think that's real sea change.
EPA analysts have belts on -- Raymond James thank you very much for -- For joining us could have -- to show.
