BP's Trading Counterparties Don't Share Investors' Fears

11th Jun 2010 12:36

(This article was originally published Thursday.) By Anna Raff and Ken Clark Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--The oil spill in the Gulf of Mexico hasn't stopped the money flowing into BP PLC's (BP, BP.LN) coffers. While investors are spooked by the prospect of the enormous costs that the London-based oil giant may incur from the catastrophe, it's business as usual for BP's most important counterparties. Commodity traders can be among the first to sniff out real financial trouble with a counterparty, but, so far, those dealing with BP remain relatively sanguine. "Nobody I know is stepping back from them," said a crude trader on the U.S. West Coast who has worked for BP in the past. "Nobody wants to see them shut down." BP posted revenues of $74.4 billion in the first quarter, putting it on par with the gross domestic product of Chile. That's more than $800 million a day from the production, processing and marketing of crude-oil, natural gas and fuels such as gasoline around the world. This money is collected through an intricate global network of traders who take on risks related to payments and shipments. Among the major oil and gas firms, BP has a relatively large trading operation, meaning that any hiccup in the company's ability to pay a customer or make a delivery would be felt almost immediately. So far, even as BP has racked up almost $1.5 billion in clean-up costs, U.S. and European traders aren't expressing concerns. "There is no change in everyday short-term trading" with BP, said a London-based crude-oil trader. "I haven't heard of anyone suddenly wary of dealing with BP." "It's a reaction we would expect," a BP spokesman said. These views are in sharp contrast to the sentiment of stock market investors who have halved BP's market value since April 20, when an offshore rig exploded in the Gulf of Mexico and caused the spill. Eleven people working on the Transocean Ltd. (RIG) platform were killed in the blast. While BP shares were 9% higher in U.S. trading on Thursday, investors continue to grapple with estimates over how bad the damage to the company will be. Most recently, Interior Secretary Ken Salazar on Wednesday said he wants BP to pay the wages of all oil workers in the U.S. who might lose their jobs as a result of the government's temporary ban on offshore drilling. Some politicians have also called on BP to suspend its dividend payments. Florida's attorney general has asked BP to put $2.5 billion in an escrow account for spill damages. Analysts have speculated that BP could be forced to cede its U.S. assets, which account for a bulk of revenues, or sell itself to a deep-pocketed national oil firm. BP has maintained its investment-grade rating through the crisis, but credit markets are treating BP as if it held a near-junk-bond rating. "If counterparties began to back away from BP, it wouldn't be a good sign," Tudor, Pickering, Holt & Co. Securities said in a research note. Credit downgrades could force BP to close trading positions, which could create a ripple affect throughout commodity markets. The trading community, however, has largely shrugged off such talk. "That won't be an issue," said another trader, based in California. Traders, who usually aren't authorized to speak with the press, spoke on the condition of anonymity for this article due to the highly politicized debate over the oil spill and the energy industry's role in it. The buying and selling of physical crude-oil and refined products is risky due to the large sums of money involved, so traders are often the first to detect that a market participant is experiencing financial troubles. Oil marketing firm SemGroup L.P. was absent from the physical market in the weeks preceding its bankruptcy filing in July 2008. Months later, at the height of the crisis, large oil companies temporarily stopped dealing with several financial institutions in the physical markets following a raft of bank failures. -By Anna Raff and Ken Clark, Dow Jones Newswires; 212-416-2150; [email protected] (Lananh Nguyen in London and Katy Burne contributed to this article.) (END) Dow Jones Newswires June 11, 2010 07:36 ET (11:36 GMT)