BP is eyeing relatively modest new bank lending lines and is not planning bond sales or new increases in asset sales to fund its Gulf of Mexico oil spill clean-up, sources familiar with the company's thinking said on Monday.
BP has considered a number of different scenarios to raise additional cash, should the need arise, such as additional asset sales and a potential bond offering.
But for now, the company is confident its cash resources can cover the bulk of the clean-up costs, one source said.
It is not seeking to raise tens of billions of dollars in debt.
Currently, the activity is around smaller numbers, the source said.
BP is seeking to arrange credit lines of up to $7 billion from banks, banking sources told Reuters last week.
Work on the loans is continuing after BP widened an ask first made in May to a wider group of banks last week, including Barclays, Societe Generale, Royal Bank of Scotland and HSBC as well as U.S. banks, a senior loan banker said.
Bankers were however doubtful that the loan could total up to $20 billion as reported in the Sunday Times due to the limited number of banks able to commit $1 billion each.
There aren't that many banks in the world that could do it and would do it. One billion dollars for a foreign deal is a big number -- you have to have massive risk appetite, the senior loan banker said.
BANK DEBT CHEAPER
Bankers said the rise in the price of BP credit derivatives, reflecting the cost of insuring BP debt, means bank debt would be much cheaper for BP than tapping the bond market.
BP last week agreed to establish a $20 billion fund to cover claims for damages suffered by those impacted by the Gulf of Mexico oil spill.
However, BP will only have to pay in $5 billion this year. It will also have to pay additionally for the effort to shut the blown out well and to clean up the shore line. BP estimates this will cost $3 billion-6 billion this year.
The estimated $8 billion to $11 billion costs this year will be met by BP's slashing of three dividend payments, which had been expected to amount to $8 billion, a $2 billion saving in capital investment this year, $10 billion in asset sales and operating cashflow.
BP said in an investor call on June 4 that it had $5 billion of cash in addition to $5.25 billion of undrawn committed bank lines and $5.25 billion of committed standby bank lines.
BP expects to generate over $30 billion in cash this year, of which only $18 billion will be consumed by investment needs.
(Additional reporting by Alex Chambers and Tessa Walsh)
(Editing by David Cowell)