Jun 10, 2010 12:07 PM by Melissa Canone
LONDON (AP) - BP shares sunk Thursday in London as U.S.
politicians pressed the British oil company to halt its dividend
payments and fork out greater compensation for American workers and
companies devastated by the massive Gulf of Mexico oil spill.
But markets were also beginning to heed warnings from analysts
who said Wednesday's 15.8 percent sell-off of BP shares in New York
was an overreaction.
BP shares dropped as much as 11 percent to a 13-year low at the
open in London, then recovered some ground by early afternoon,
trading 5.1 percent lower $5.42. In the United States, the stock
was up 11.6 percent in premarket trading at $3.40.
The share price falls in London and New York have wiped out
around half the company's market value since the spill began with
an April 20 rig explosion in the Gulf.
BP PLC is finding itself caught in a trans-Atlantic squeeze
between an angry U.S. administration and unhappy shareholders, who
include hundreds of thousands of retirees in 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.
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
"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
Robert Talbut, the 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
The politics of the spill crossed the Atlantic, with London
Mayor Boris Johnson expressing concern Thursday about the
"anti-British rhetoric that seems to be permeating from America."
Johnson said BP was paying a "very, very heavy price" for an
"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."
The influential Financial Times newspaper ran a banner
front-page headline "UK alarm over attack on BP."
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
the cost of the clean-up and containment efforts had now hit $1.43
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 Thursday that it had "significant capacity and
flexibility" to deal with ongoing costs, underlining its
additional cash flow, strong debt to equity ratio and proven
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
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.
Killik & Co. analyst Jonathan Jackson said the shares would
remain very volatile until there was a clearer idea of the
potential cost but he remained positive on the stock.
"Despite the high risk involved in adding to holdings in the
short term and the possibility of a temporary suspension of the
dividend, we would continue to do so," he said.