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BP shares plunge, US threatens new penalties

BP shares plunge, US threatens new penalties
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First Published: Thu, Jun 10 2010. 02 31 PM IST
Updated: Thu, Jun 10 2010. 02 31 PM IST
London/Venice: The shares of oil giant BP Plc continued falling on Thursday on concerns about the costs the British company will face in the massive Gulf of Mexico oil spill.
The shares opened trading in London 11% down before recovering to trade down 4.0%, one day after BP depositary shares plummeted to a 14-year low in New York.
President Barack Obama’s administration ratcheted up its demands on Wednesday that BP cover all the costs stemming from the disaster, including millions of dollars in salaries of workers laid off due to a drilling moratorium in the Gulf.
With polls showing public disapproval over Obama’s handling of the worst oil spill in US history, the prospect of new government penalties has sapped investor confidence in BP.
BP said it had the financial flexibility to deal with liabilities related to the spill and that it was unaware of any justification for the collapse in its shares.
“BP notes the fall in its share price in US trading last night. The company is not aware of any reason which justifies this share price movement,” BP said in a statement.
The cost of the response effort to date has been around $1.43 billion, the company added.were scheduled on Thursday in Washington as BP sought to capture more of the oil gushing into the Gulf of Mexico from its ruptured undersea well.
BP’s latest containment effort, which follows a series of earlier failed attempts, involves placing a containment cap with a seal on a deep-sea pipe from which the oil is gushing. It said on Wednesday it was capturing more of the oil though the exact flow rate remains unknown.
With Wednesday’s battering in New York, BP has lost more than half its market value since the crisis began on 20 April when the deepsea well ruptured and the Deepwater Horizon rig exploded, killing 11 workers and unleashing a torrent of oil.
Dividend Payment
BP shares have been hurt by concerns the company might have to suspend its dividend payment. US politicians have been calling for this, saying the company should put its cash into paying for legal claims and environmental damage in the Gulf.
Restructuring experts agree that by running the numbers alone, BP looks able to handle the financial damage. But such confidence has not been evident in the market.
The company is under siege on multiple fronts as the spill spreads, threatening an ecological catastrophe in the Gulf.
“It seems that shares are under pressure from the fear of whether BP can survive. It is not just a rumor about the potential of a dividend cut in BP anymore. Now it’s about the survivability of the company,” said Jon Najarian, a founder of Web information site optionMonster.com in Chicago.
US Interior Secretary Ken Salazar told a Senate hearing he would ask BP to repay salaries of workers laid off because of the six-month moratorium on deepwater exploratory drilling imposed by the government after the spill.
As the US government turned up the heat on the British oil major, a BP source said the company believes it may be heading for a showdown with the White House over widening liability demands.
While the company has said it will pay for the clean-up and direct damages to those affected by the spill, the moratorium was a government decision and costs related to it were a different matter, the source said.
A senior US Justice Department official said after the markets closed that the department was “planning to take action” to ensure BP had enough money on hand to cover spill damages.
Robert Stark, a bankruptcy attorney with Brown Rudnick in New York, said he expected BP to be running models right now to determine how they would pay their liability claims.
“It’s a very big company with a very big balance sheet ... in the pure economic world of bankruptcy, do they have enough money to pay their debts? I don’t think any of us know that for a fact. At least in the short term they have capability to pay,” he said.
There were visible signs of anger in Louisiana, where fishing bans are taking a heavy toll on the local economy.
At Maw’s Sandwich and Snack Shop in Boothville, Louisiana where French fries smothered in gravy are on the menu, a poster said “Obama Needs A Lesson In Leadership And Compassion.”
Images of oiled pelicans and other wildlife are further stoking public anger with both the U.S. government and BP.
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First Published: Thu, Jun 10 2010. 02 31 PM IST
More Topics: Oil spill | BP | Obama | Bobby Jindal | Gulf of Mexico |