If negotiations between the federal government and companies linked to the 2010 Gulf of Mexico oil spill lead to a settlement with Halliburton, it could present an opportunity for the company to repurchase some of its stock and boost its share prices, an analyst said Monday.
“A Macondo resolution would allow the company to resume buying back stock and expect Halliburton to be a relative outperformer,” Barclays Capital wrote in a Monday morning analyst’s note.
Halliburton was the cement contractor on BP’s Macondo well, which blew out in April 2010, killing 11 workers on Transocean’s Deepwater Horizon drilling rig and spilling an estimated 4.9 million barrels of crude into the Gulf of Mexico.
The federal government has filed suit alleging Clean Water Act violations that could result in billions of dollars in fines, depending on how a federal court apportions culpability for the spill and whether it finds the disaster resulted from gross negligence.
In the first quarter Halliburton booked a $300 million charge for estimated loss contingencies related to the accident. Analysts have said that Halliburton estimates the total loss it will incur to be about $1 billion.
The company has been conserving its cash in preparation for a possible payout, and now has about $2.7 billion in cash and cash equivalents. Barclays believes some of that might be available for a stock buyback when the litigation is resolved.
Halliburton’s stock has been volatile in the two years since the accident, pulled in opposite directions by uncertainty surrounding its spill liability and by its role as a major provider of oil field services technology that’s driving the boom in oil and gas production from shale formations. Its shares fell from $34.96 just before the accident to $28.63 that summer, then reached a high of $57.20 in July 2011. In the past year, the low price of natural gas and drop in natural gas drilling has contribute to another stock decline, and it now hovers around $28, a price that analysts believe does not reflect its underlying value.
“Despite the challenges in the North American Markets that have weighed on the shares, HAL remains a best-in-class domestic franchise and internationally volumes are trending higher and we expect margins to improve throughout the year,” Barclays wrote.Source