The BP oil leak in the Gulf of Mexico has cut billions off the projected pensions income from UK pension funds. The direct result is that a pension income of £15,000 per year will now be cut by £400, as a direct result of BP’s falling share value.
Following the leak the BP share price, which had topped 650p in April, had tumbled to 417p by the beginning of June. At one point, BP’s market value was down by 17%, and the company’s value was estimated to have fallen by £42bn. Furthermore, the situation for BP, its share price and the knock-on effect on UK pension incomes may well get worse, before it gets better.
By the time the leak is sealed – which may be August this year – the cost of the repairs may have cost BP a further £15bn. BP is also expected to promise shareholders it will maintain their annual dividend – a payment which totalled £10bn last year.
In addition, the company is reported to have already received 30,000 insurance claims as a result of the spillage, and have paid 15,000 of them, at a cost of £700m.
Measures designed to control the 800,000 gallons of oil spilling into the Gulf of Mexico off Louisiana every day are unlikely to kick in for several months. The primary measure is to cut and then cap the ruptured pipeline, and that strategy is now being pursued using remote-controlled undersea robots. A less tricky strategy with a higher chance of success is to drill relief wells to draw the oil away from the damaged well, but this may take 2 months to complete.
The oilslick is now 120 miles long, and with the hurricane season approaching, BP may face the prospect that the offshore slick could be washed onshore, affecting cities from New Orleans to Gulfport, Mobile and Pensacola as it goes.
Pension savers may wish to consult their pension planner and examine their pension planning strategy, to evaluate the indirect affect of BP’s woes on their pensions income.
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