As Spill Costs Mount, BP Shares Fall

Shares of BP are down about 50 percent from where they were on April 20, the day the Deepwater Horizon rig exploded and let loose a massive oil spill in the Gulf of Mexico. BP says there's no justification for a decline of that magnitude, but investors are worried about the cleanup's mounting costs. There is also concern that BP will be forced to cut its dividend.

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Investors on Wall Street and in London are skittish about BP. That's after growing White House and congressional pressure on the company to do more to pay for the massive oil spill in the Gulf. BP's share price dropped 16 percent on U.S. markets yesterday and fell sharply this morning in London before bouncing back. It ended up 12 percent at the close of U.S. trading today.

Here's NPR's John Ydstie.

JOHN YDSTIE: When the U.S. market closed yesterday, BP was worth less than half its pre-spill value. Fadel Gheit, managing director of oil and gas research at Oppenheimer & Company, says the selling was overdone.

Mr. FADEL GHEIT (Managing Director and Senior Analyst, Oppenheimer & Co. Inc.): It was panic selling. Investors were just dumping the stock.

YDSTIE: And Gheit says it was fueled by politics. Members of Congress calling for a suspension of BP's dividend to make sure the company had enough money to pay for the spill. The White House saying it expects BP to pay for the repercussions of the administration's six-month ban on deepwater drilling in the Gulf. There was fear in the market, says Gheit.

Mr. GHEIT: Fear of indefinite suspension of the cash dividend, rumors about bankruptcy, rumors about the company would be taken over by one of its rivals. It would be forced to sell its assets. I see no ground for that.

YDSTIE: Gheit says BP is a rich company that has the financial capacity to weather this crisis.

Mr. GHEIT: BP generates almost $3 billion a month in cash flow, so they would be able not only to maintain the dividend, if they wish, but also to invest in their business. And they will have cash left over in the billions of dollars.

YDSTIE: After all, he says, in the first three months of this year, BP had profits of $5.6 billion. Still, says Gheit, BP might want to cut its dividend in half to damp down the political heat and remove some uncertainty for investors.

Peter Ricchiuti of the Tulane University's Freeman School of Business in New Orleans thinks BP should suspend its dividend entirely.

Mr. PETER RICCHIUTI (Assistant Dean, Freeman School of Business, Tulane University): Paying out money to shareholders that in fact may end up being needed for cleanup operations or legal encounters does seem to be a little bit of a slap in the face to the U.S. and to the Gulf Coast and to the cleanup operations.

YDSTIE: But what if BP had to pay for not only the cleanup but for the cost of the president's six-month moratorium on deepwater drilling? That could result in 10 to 20,000 unemployment claims by oil and gas industry workers, according to Louisiana Economic Development, a state agency.

Peter Ricchiuti believes it will be difficult to hold BP liable for those lost jobs.

Mr. RICCHIUTI: I'm not sure that's going to really hold water in court. I mean, obviously, BP is going to say that the problem was not them, it was the federal government closing the deepwater drilling.

YDSTIE: But Ricchiuti thinks at a minimum, BP will need to sell some assets to pay off its obligations, and he believes the company could easily sell off a few oilfields if it had to. As for an outright sale of all of the company's assets, a takeover, neither Fadel Gheit nor Peter Ricchiuti thinks that's likely.

Neither does Robert Talbot, chief investment officer at Royal London Asset Management, which holds BP shares.

Mr. ROBERT TALBOT (Chief Investment Officer, Royal London Asset Management): I can understand exactly as to why somebody else would actually want to buy the BP assets because I think they're all grossly undervalued at the moment. But as a shareholder, it's not something I would welcome and it's certainly not at this sort of share price that I'd be prepared to sell.

YDSTIE: Fadel Gheit agrees. He thinks BP shares are undervalued right now, too. Peter Ricchiuti isn't convinced. He thinks it's impossible to know just how much this massive spill might cost BP.

John Ydstie, NPR News, Washington.

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