S&P Removes Cloud Over BP (BP)

Whether or not you still trust the independent credit ratings agencies after the credit crisis up to you.  Credit ratings do still matter to many investors.  This morning we have Standard & Poor’s coming to the rescue of none other than BP PLC (NYSE: BP).  We are effectively one-year into the heat of the aftermath of its Gulf of Mexico disaster.

S&P had previously had BP on a Negative outlook for its ‘A/A-1’ ratings.  That has now been revised to Stable from Negative.  In short, no further credit downgrades are coming at BP based on the information available and known today.

The report called the operating performance as ‘satisfactory’ and the rating is supported by the current market conditions.  What has been seen in asset sales and cash from operations.  S&P also sees a reduced risk to the downside and it also sees little evidence of additional business erosion.

Some of this may be driven by higher oil prices as well.  S&P noted that BP saw refining margin expansion and said that the first quarter of 2011 saw nearly 20% higher in realized oil prices than the fourth quarter of 2010.  For a year over year comparison, that gain was up about 30%.  Who says higher oil prices don’t help oil companies?  Risks to this rating would be if oil prices fall significantly and if its cash flow drops significantly.

Another boost is that BP has effectively received over half of its cash for what has been called an “up to $30 billion” in asset sales.  In short, BP is even better positioned to fund its Gulf of Mexico liabilities and it remains better positioned to fund future fines and liabilities.

Since China hiked its interest rates this morning that has put pressure on oil and therefore on oil stocks.  BP’s ADR is indicated down about 1.8% to $43.42 in the pre-market and the 52-week trading range is $32.12 to $49.50.  Shares were above $60 before the disaster and went well under $30 at the peak of the disaster.  The stock has not traded under $40 in all of 2011.

JON C. OGG