To some — and not just environmentalists — there may be some poetic justice in a new apparent trend in the Gulf oil spill story: as the oil from under the sea gushes up threatening fish, birds, the coastline and a whole way of life, British Petroleum’s shares have begun to fall amid speculation that the whole sorry saga will end in the company having to declare bankruptcy.
Speculation abounds about how it’ll all end for BP — but few expect the company to be the same after the oil stops gushing, whenever that may be. ABC News reports:
Pelicans, dolphins and other wildlife may not be able to escape the oil leak in the Gulf of Mexico, but investors in the corporation responsible for it have stepped up their exodus.
Shares in BP plunged again today in London after yet another sell-off in New York Wednesday, wiping out more than $82 billion in value from the London-based oil and natural gas firm. BP, No. 5 in sales worldwide on Forbes list of biggest companies, has seen its fortunes collapse in the wake of the spill that is now in its 52nd day.
Its shares have fallen more than 40 percent since the April 20 spill and there has been chatter about a possible bankruptcy filing by BP amid U.S. political pressure on the company to halt dividend payments and pay even more compensation for the Gulf of Mexico oil spill. That might be extended to include unemployment benefits for thousands of U.S. workers affected by the spill.
The stock had dropped as much as 11 percent to a 13-year low at the London opening today, although it recovered some ground by midmorning, trading 4.3 percent lower at 374.50 pence ($5.47), as analysts suggested the sell-off was overdone. That’s a 13-year low for BP, which also trades in the U.S. as despositary shares.
The threats to BP’s dividend are worrisome among investors because the company has long had a reputation as one of the most dependable dividend payers, making it an attractive holding for retirees and others who need a steady income. Last year, the company paid about $10.5 billion in dividends. It is one of the largest and most widely held British stocks.
In New York trading on Wednesday, BP’s depositary shares fell 15.8 percent.
The company’s market capitalization has dropped by about half since the leak began. The expense of cleaning up the oil spill continue to grow; the cost of the response effort so far is about $1.43 billion, the company said Thursday. Some on Wall Street fear the company could be forced to seek bankruptcy protection or a merger, though the company had $6.84 billion in cash on hand at the end of the first quarter, according to its financial statement.
But BP has a more immediate problem: mounting pressure from Washington. Lawmakers called on the company on Wednesday to suspend its dividend and advertising to pay for the cleanup, and a senior official said the Justice Department was “planning to take action.”
BP put out a statement Thursday morning in which it noted the drop in its share price in New York trading but that it’s “not aware of any reason which justifies this share price movement.” Company executives reiterated that the response to the spill was their “top priority” and that they had a strong asset base that is generating significant additional cash flow to deal with all the costs.
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 fundamentals.
“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 BP.”
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 welcome.”
Many are wondering what is really happening with BP (NYSE:BP) and the claims that they are filing bankruptcy. Matt Simons, oil industry insider and the energy focused investment bank Simmons & Co. told Fortune magazine that BP will eventually run out of money from lawsuits, oil cleanup costs, among other expenses.
“They have about a month before they declare chapter 11 bankruptcy,” said Simmons. “One really smart thing Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup, he continued, “but there isn’t enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this, my guess is they’ll go into panic and file chapter 11.”
The news started when a signal from a news report that quoted an analyst as saying BP could be forced to seek bankruptcy protection in about a month because of the oil spill. Analysts also said there were concerns that the company might have trouble paying its dividend.
Will there be a BP bankruptcy? It is too early to tell. I remember BP’s CEO Tony Hayward as saying that BP’s balance sheet is strong enough to handle the oil spill. The question now lies up until when can BP hold the large costs of the oil spill. BP must contain and stop the oil spill immediately before its finances get exhausted in paying oil spill claims and injuries eventually leading to a bankruptcy.
The reason that BP might have to declare bankruptcy to survive the financial and reputation disaster that they company had to face due to the Oil Spill in the Gulf Of Mexico.
It is confirmed that BP, one of the biggest Oil companies has lost around 47 percent of its value since the 20th of April. This has resulted in serious problems for its shareholders.
For those who are following BP closely, say that the liability for BP could reach around $40 Billion before it’s the end of BP. If this continues downhill for BP further, BP will have to end up declaring bankruptcy.
Joe Gandelman is a former fulltime journalist who freelanced in India, Spain, Bangladesh and Cypress writing for publications such as the Christian Science Monitor and Newsweek. He also did radio reports from Madrid for NPR’s All Things Considered. He has worked on two U.S. newspapers and quit the news biz in 1990 to go into entertainment. He also has written for The Week and several online publications, did a column for Cagle Cartoons Syndicate and has appeared on CNN.