BP rebounds on phasing in of oil spill fund payments

BP Plc rebounded the most in 19 months and the cost of insuring the company against default fell after an agreement to phase in payments to a $20 billion fund to compensate victims of the worst oil spill in US history. 

BP scrapped dividends and pledged asset sales yesterday to meet President Barack Obama’s demand to set up the fund in response to the Gulf of Mexico oil spill. Its shares have slumped 45 per cent since the Deepwater Horizon rig exploded on April 20, wiping about $80 billion off the London-based company’s value. 

“It brings some clarity, but obviously we still don’t know whether $20 billion will be enough or whether the company will need more,” said Colin Morton, who helps manage about $1.7 billion at Rensburg Fund Management in Leeds, England. “If this is the final cost, it’s more than adequately reflected in the price,” he added. 

Chief Executive Officer Tony Hayward, who will testify before Congress today, said in prepared testimony that he was “deeply sorry” for the explosion and spill. BP’s Chairman Carl-Henric Svanberg agreed on payments over four years to finance an independent body that will settle claims resulting from the damaged oil well after a meeting with Obama at the White House yesterday. 

BP jumped as much as 9.7 per cent, the biggest intra-day gain since November 2008, and traded at 361.25 pence as of 10:22 am in London. The shares fell 1.5 per cent yesterday to 337 pence, the lowest since April 1997. 

Halting the dividend, reducing investments in drilling and selling oil and gas fields will do enough to ensure the company’s financial stability, Chief Financial Officer Byron Grote said yesterday. 

The deal to phase payments into the fund “allows us to stage our injections in a way that I hope now provides comfort to debt and equity markets,” Grote said. 

BP had faced increased pressure from US lawmakers to settle damage claims and suspend the dividend in the run-up to yesterday’s meeting at the White House. 

“A line has been drawn,” said Manoj Ladwa, a London-based senior trader at ETX Capital. “It’s likely that we are going to see less of the aggressive rhetoric that we saw out of the US administration going forward,” he added. 

Meanwhile BP is considering a corporate debt offering of $5 billion to $10 billion as early as next week, CNBC reported on Thursday.