Market News

 June 10, 2010
As spill costs mount, BP shares tumble anew 13-year low

 U.S. lawmakers want more compensation; Obama, Cameron to discuss issue

LONDON - BP shares sank in London to their lowest levels in 13 years as U.S. lawmakers pressed the British oil company to halt its dividend payments and fork out more compensation for damage caused by the massive Gulf of Mexico oil spill.

BP shares dropped as much as 11 percent in London before recovering some ground by early afternoon, trading 5.1 percent lower at 371.40 pence ($5.42). In the United States, the stock bounced back as some analysts said Wednesday's 15.8 percent selloff was an overreaction.

Still, the steady decline in the company's share price has fallen nearly 50 percent since the spill began with an April 20 rig explosion in the Gulf, wiping out nearly $90 billion in market value.

BP is finding itself caught in a trans-Atlantic squeeze between angry U.S. government officials and unhappy shareholders, including hundreds of thousands of retirees who own the shares through British pension funds.

Prime Minister David Cameron's office said the British leader would discuss the issue with President Barack Obama on a scheduled telephone call over the weekend.

Investors are fretting about the rising costs facing BP after Obama suggested it should also pay unemployment benefits to thousands of oil workers laid off during a moratorium on deep-sea drilling triggered by the spill.

Strong financial position

BP tried to reassure investors before the London Stock Exchange opened, saying it was in a strong financial position and it saw no reason to justify the U.S. sell-off, and many analysts agree that the company can withstand the crisis.

But most market experts also acknowledge that the political rhetoric surrounding the accident is outweighing financial fundamentals.

BP is scheduled to pay shareholders $2.63 billion in quarterly dividends June 21, causing outrage among some U.S. lawmakers, who have urged CEO Tony Hayward to halt the payment, which was announced April 27.

While that appears unlikely, Evolution Securities analyst Richard Griffith said BP may halt future dividend payouts "until the wells are capped and the clean-up (is) sufficiently advanced to convince the US that it can afford all the costs as well as pay dividends."

"Unilateral action against BP over its U.S. operations, be it unreasonable or illegal, hangs over BP," he said.

But he and other analysts emphasized that BP has no serious financial issues, even though it said Thursday the cost of the cleanup and containment efforts had now hit $1.43 billion.

BP had $6.8 billion in cash on its balance sheet at last report and generated $16.6 billion in profits in 2009.

Robert Talbut, chief investment officer at Royal London Asset Management, a shareholder in BP, said "there is a lot of very irrational and short-term selling going on." But he added that talk of a potential sale of assets or takeover bid --- PetroChina Ltd. has been suggested by some as a potential suitor --- was not surprising.

"I can understand exactly why someone else would want to buy the BP assets because I think they are grossly undervalued at the moment," he said. "As a shareholder, it's not something I would welcome."