OREANDA-NEWS. The clarification by BP of the group's liabilities under the Macondo settlements is unlikely to affect its 'A'/Stable rating at this stage, Fitch Ratings said. An additional USD5.2bn pre-tax charge will translate into slightly higher financial leverage, but this is offset by the elimination of all material uncertainties around the 2010 Macondo disaster.

BP announced yesterday that it has estimated all of its remaining material liabilities in connection with the accident, including the remaining economic and property damage claims relating to the 2012 Plaintiffs' Steering Committee settlement, opt-out and excluded claims, and claims related to the securities litigation. These additional liabilities will involve an additional pre-tax charge of USD5.2bn, on top of the previous total pre-tax charge of USD56.4bn related to the accident. BP assesses its additional post-tax charge at USD2.5bn.

We now estimate that in 2016-19 BP's annual average cash outflows associated with the accident will average around USD2bn, including the payments under the USD20.8bn settlement of the federal, state and local government claims extended over 16 years. We also assume that the additional USD5.2bn charge will crystallise into cash outflows in 2016-19, with tax deductions reducing the actual cash outflows by 25%. We expect that a significant part of 2016-19 payments should be covered by divestments.

Under our base case assumptions, including oil gradually recovering from USD35/bbl in 2016 to USD65/bbl in 2019, we expect BP's funds from operations (FFO) adjusted net leverage to moderate to 2.8x in 2018 and 2.7x in 2019, after rising above 3x in 2016-17 on low oil prices. This is slightly higher than previously expected (2018: 2.7x; 2019: 2.6x) but is still in line with the 'A' rating and a Stable Outlook. Our through the cycle upper threshold for an 'A' rating for BP is 3x FFO adjusted net leverage. BP will now have lower leverage headroom, and further negative developments, such as inability to cut capex, are more likely to trigger a negative rating action.

The resulting higher visibility of BP's Macondo-related liabilities is credit-positive on its own and largely offsets the negative effect of marginally higher leverage on BP's credit profile. We believe that new material liabilities are now much less likely to follow, and would treat them as an event risk.