Thursday, June 17, 2010

BP Gets A Lifeline

As expected, once the amount is ascertained, the removal of uncertainty will certainly boost the share price. This will pave the way for the company to be sold off. There is not much chance BP can survive or realise its potential under the banner of BP. The reserves will not get their proper valuation and institutional shareholders are likely to put pressure for the company to be sold to someone to extract value.


It is likely to be highly attractive to Petrochina, just the reserves alone. Petrochina is also possibly the only one willing to pay a premium. Any takeover is likely to be circa $45.


Dealbook: Shares in BP made up part of their recent losses Thursday as investors welcomed a deal struck with President Obama to set up a compensation fund for the victims of the oil spill in the Gulf of Mexico. The shares gained as much as 9.7 percent in early London trading. They had fallen 45 percent since an oil rig exploded in April, Julia Werdigier reports in The New York Times.

Some investors said the agreement with the United States eliminates some of the uncertainty about the costs for the oil spill cleanup and compensation, even though BP scrapped dividend payments as part of the deal.

“It’s a positive because there were no surprises in the deal, the dividend had been well communicated beforehand and at least in the near-term the agreement gives investors a little bit more certainty and something to work with,” said Keith Bowman, an analyst at the asset manager Hargreaves Lansdown in England.

The cost of insuring BP against default also fell and its bonds rose, a sign that fewer investors are speculating that BP might go bankrupt. The BP chief executive Tony Hayward is due to testify before Congress Thursday, but the agreement with President Obama, struck at the White House Wednesday, was widely seen as a step to calm tensions between BP executives and Washington about the company’s efforts to clean up the spill.

BP agreed to create a $20 billion fund to pay damage claims to thousands of fishermen and others living and working along the Gulf Coast. The company also said that it would sell oil and gas fields and cut investments in drilling if necessary to ensure BP had enough money to pay for any costs.

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Some shareholders in Britain had previously opposed plans to halt dividend payments, which are among the most generous of any British company, as a result of U.S. pressure. BP stock is also widely held in pension funds across the country and it would be the first time since World War II that BP was not paying a dividend. But the political opposition in the United States to paying dividends to shareholders while the total cleanup cost and damage claims remain unknown started to weigh on BP’s share price.

“Hopefully the deal will remove just a little bit of pressure and allow BP to fully concentrate on the oil spill,” Mr. Bowman said.

2 comments:

kl said...

Hmm, looks like price will hold above US$30 for now. Has it bottomed out? Any more hidden bad news to come? At least neither Chairman or CEO was fired. Dividend cut expected. Very tempted to make initial purchase at US$31-32 but will wait for next week's action.

Eclectic Investor said...

My Research about BP Plc
http://special-situation-investing.blogspot.com/