| Published: | Jun 10, 2010 11:50 AM EDT |
| Updated: | Jun 10, 2010 8:50 AM EDT |
LONDON (AP) - Shares in BP plunged again in early trading in
London - extending a sell-off in New York - as U.S. political
pressure intensified on the British oil company to halt dividend
payments and fork out greater compensation for the Gulf of Mexico
oil spill.
The stock had dropped as much as 11 percent to a 13-year low at
the opening as experts warned dividend payouts would likely be
postponed. However, it recovered some ground by midmorning, trading
4.3 percent lower at 374.50 pence ($5.47), as analysts suggested
the sell-off was overdone.
Some investors also fretted about the rising costs facing BP
after President Barack Obama's administration suggested it should
pay unemployment benefits to thousands of oil workers laid off
during a moratorium on deep-sea drilling triggered by the spill.
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 was outweighing financial
fundamentals.
"We don't believe BP has a funding issue but given the
overwhelmingly hostile nature of the U.S. government the company
may decide to suspend payments until the wells are capped and the
clean-up sufficiently advanced to convince the US that it can
afford all the costs as well as pay dividends," said Evolution
Securities analyst Richard Griffith. "Unilateral action against BP
over its U.S. operations, be it unreasonable or illegal, hangs over
BP."
Robert Talbut, the chief investment officer at Royal London
Asset Management, a shareholder in BP, said that "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 analysts 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."
The politics of the spill crossed the Atlantic on Thursday, with
London Mayor Boris Johnson expressing concern about the
"anti-British rhetoric that seems to be permeating from America."
Johnson said that BP was paying a "very, very heavy price" for
an accident.
"I would like to see a bit of cool heads rather than endlessly
buck-passing and name-calling," Johnson told BBC Radio. "When you
consider the huge exposure of British pension funds to BP it starts
to become a matter of national concern if a great British company
is being continually beaten up on the airwaves."
Cutting the dividend would have a big impact in Britain, where
the company accounts for about an eighth of dividend payments from
companies in that country's blue-chip stock index, providing
crucial income for retirees. In addition, about 40 percent of BP's
shareholders are based in the U.S.
BP, which earned more than $16 billion last year, said Thursday
that the cost of the clean-up and containment efforts had now hit
$1.43 billion.
Speaking to investors last week, CEO Tony Hayward wouldn't
estimate the total bill, though he told analysts that minority
partners in the rig would be expected to pay as well.
BP stressed on Thurday that it had "significant capacity and
flexibility" to deal with ongoing costs, underlining its
additional cash flow, strong debt to equity ratio and proven
reserves.
The company reminded investors that it had indicated in March -
before the explosion at the Deepwater Horizon rig - that its cash
inflows and outflows were balanced at an oil price of around $60
per barrel.
It said its gearing was currently below the bottom of its
targeted range and its asset base was "strong and valuable." The
company had more than 18 million barrels of proven reserves and 63
billion barrels of resources at the end of 2009.
The share price falls in London and New York have wiped out
around half the company's market value.
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