Fitch Ratings delivered another blow to BP when it announced this morning that it has downgraded the oil company’s long-term credit risk from AA to BBB, two steps above “junk.”
Although the repercussions were not immediately seen in the company’s share price there are reasons to be wary of major ramifications down the line.
Oil futures in the very long term could be impacted as BP finds it harder to get capital to sustain its existing drilling and open up new sites. Governments and private landowners may also be wary of granting rights to a company with such a toxic public image and credit rating.
It’s also important to note that BP is struggling to contain the leak because it was drilling in extremely deep water, which is increasingly where new oil deposits are found. Many in the oil industry say that the easy to find, easy to get oil has all been found.
As new discoveries come online, they will be located in more dangerous and precarious locations, where accidents like the Deepwater Horizon catastrophe are more likely. Another such accident would annihilate the share value of the operating company – see BP’s share value, down almost 50 percent from just three months ago. And next time, markets and futures won’t wait as long to move on the news.
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