BP Shares up on Oil Spill Settlement, But Uncertainties Remain

Bloomberg reported last Friday that BP (NYSE: BP) has reached a $7.8 billion settlement deal with the Gulf of Mexico oil spill victims. According to BP, the settlement will be paid out of its $20 billion trust that was established for compensating the victims.

The shares of BP have reacted positively to the settlement news on today's trading session, as the stock is up 1.14% outperforming the overall markets. Brian Youngberg, an Edward Jones analyst, who has a Hold rating on BP stated that “the settlement removes one portion of the unknown facing the company regarding the oil spill. Removing uncertainty almost always helps a stock's price and BP is up today.”

Youngberg continued by stating that: “Bigger picture, uncertainty remains with the potential fines and penalties from the CWA and OPA. The settlement did not address the DOJ as well as state and local governments. Criminal charges also could be forthcoming this year. Worst case scenario could see further payments of up to $40 billion. It will likely be much less than that, but the range of possibilities is wide.”

Also Benchmark's analyst Mark Gilman was somewhat cautious on BP following the settlement announcement. In this morning's research report Gilman notes that “We are mildly disappointed with the recently announced “settlement” with the non-governmental plaintiffs regarding Macondo-related liabilities.” Gilman also points out that the settlement is not fully definitive yet and certain terms still need to be finalized.

Overall, the analysts' cautious optimism is good news for investors, but they should still keep a close eye on the news regarding BP. Any negative reports about the CWA and OPA fines and penalties could hurt the stock that has started to show signs of recovery.

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Edward Jones disclosure: Initiated Coverage (BUY) 12/24/98...............BUY 12/24/98--6/14/2010, HOLD 6/14/2010--6/16/2010 • Edward Jones does not have any material business relationships with this company.

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