(FT) BP is forecast to pay about $10bn (£6.7bn) less tax over the next four years as it meets the costs of its huge oil spill in the Gulf of Mexico, hitting the revenues of Britain and the US that receive hundreds of millions of dollars from the company each year.So now, because the company created such a catastrophic disaster, and might spend about $50 billion to cover the liabilities, journalists and analysts manage to find the silver-lining in that taxes paid by BP are going to be reduced by $10 billion. Just a few weeks ago, the company was going bankrupt according to the same analysts, but now, they see everything with pink tainted glasses.
Money spent plugging the well, cleaning up the oil, and compensating people who have lost out because of the spill, can be written off against tax, the company believes, reducing the net cost to BP.
Shares in BP rose 4 per cent to 414.9p in early London trading on Tuesday, adding to the 9 per cent gain registered in the previous session, but the company still faces huge and uncertain liabilities, estimated by analysts at about $50bn.
With a tax rate on profits of 33 per cent in a typical year, that would cut BP’s tax bill by about $10bn.
Irene Himona, an analyst at Exane BNP Paribas, estimated that before the Deepwater Horizon accident, BP was set to pay about $37.5bn in tax during 2010-13, but the costs of the disaster would cut that to $27bn.
Also worth noticing if you care about reading the full report, there's a misconception/error made by the journalist in the fact that they assume that the lower taxes paid by BP is going to create a downfall in the taxes collected by the governments. They forget that the system is a closed one, and that the expected $50 billion that BP will spend should become some other companies profits. Simple logic is mostly absent from economists and journalists, it's sad but true.
That said, BP shares dropped violently mid day before reversing course and managing to close at around +1%. This drop cleared the overboughtness of the share in the short term. This makes my outlook fuzzy: I don't know what will happen in the short term, so I'm keeping my shares for now. Maybe we'll reach my $40 to $45 target before a correction occurs? Maybe not. Wait&Pray...