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BP Shares Fall on Fear That Dividends Will Be Cut

Wednesday, 09 Jun 2010 01:35 PM

Investors dumped shares of BP Wednesday, as estimates of the amount of oil flowing from its blown-out well grew amid fears the British oil company will bow to U.S. political pressure to cut dividends to help pay for the Gulf of Mexico oil spill disaster.

The stock dropped more that 10 percent, at one point hitting $29.77, the lowest level in 14 years. BP shares have now lost half their value since the April 20 rig explosion off the Louisiana coast.

Fadel Gheit, energy analyst with Oppenheimer & Co. said shareholders are worried that BP will stop paying its dividend, either to conserve cash or because of political pressure from U.S. lawmakers.

The company is scheduled to make a $2.63 billion payout on June 21. BP hasn't said whether it would approve a payout for the second quarter. Meanwhile, cost estimates grow with every barrel that BP's failed well belches into the Gulf of Mexico.

In Washington, the point man for the U.S. government's response to the oil spill said BP is now capturing more than 630,000 gallons per day from the gushing well. Coast Guard Adm. Thad Allen's elevated figure means that both BP and the government may have vastly underestimated the total that's spilled into the Gulf up to now.

That seemed to unnerve investors. In afternoon trading in New York, BP shares dropped $4.77, or 13.5 percent, to $29.91.

"It's in freefall," Gheit said of BP stock. "There's an old saying: 'Don't try to catch a falling knife.'"

Gheit said investors are overlooking the fact that BP has deep enough pockets to pay for the spill, fines and damages. It's also able to borrow another $15 billion if needed, he said.

BP told investors on Friday that it has "considerable firepower" to cover the cost of the Gulf spill and give funds to investors.

But since then, President Barack Obama has referred to the dividend a number of times in his criticism of BP. The U.S. leader has stepped up his tough talk: As well as ordering the company to pay to clean up the mess, he this week made clear he'd fire BP chief Tony Hayward if he could after a number of gaffes by the CEO.

A group of about 30 U.S. lawmakers joined the fray Wednesday, sending an open letter to Hayward asking him to suspend dividend payments and advertising campaigns until the well is capped and the spill has been cleaned up.

"Not a moment before then should you return to business as usual," the House of Representatives members wrote in the letter.

Hayward is expected to come under further fire at a Congressional hearing next week.

Cutting the dividend would have a big impact in Britain, as BP accounts for around 12-13 percent of payments from companies in the blue-chip FTSE 100 index, providing crucial income for millions of retirement accounts. In addition, about 40 percent of BP's shareholders are based in the U.S.

Other analysts share Gheit's belief that the sell-off is an overreaction.

Analysts at Evolution Securities said the "political and media frenzy in response to the Deepwater Horizon accident is understandable but the share price response appears to be equally frenzied and irrational."

"Present and future dividends look secure even if political pressure could force a short term suspension of payments," they said. "Ironically, this punishes shareholders, some of whom are U.S. based, and not the management of BP, where most of the political anger is directed."

BP, which earned more than $16 billion last year, has already spent more than $1 billion dealing with the Gulf of Mexico disaster. Hayward last week wouldn't estimate the total bill, though he told analysts that minority partners like Anadarko Petroleum Corp. will be expected to pay as well, as he reassured investors that the company could cope.

Ratings agencies Moody's, Standard & Poor's and Fitch have all downgraded the company, with Fitch warning further downgrades are possible if the clean up and political fallout are more costly than the agency's worst case $5 billion scenario.

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Investors dumped shares of BP Wednesday, as estimates of the amount of oil flowing from its blown-out well grew amid fears the British oil company will bow to U.S. political pressure to cutdividends to help pay for the Gulf of Mexico oil spill disaster. The stock dropped...
EU,Britain,BP,Shares
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2010-35-09
Wednesday, 09 Jun 2010 01:35 PM
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