June 10, 2010 -- 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 50 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 at the London opening today, but closed down 6.7 percent, 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 U.S. shares, which plunged sharply Wednesday, traded higher in the afternoon today, partly on a positive report for energy demand that sent energy shares higher.
The latest sell-off came after respected oil industry analyst Matt Simmons told Fortune Magazine that a bankruptcy filing was likely within a month. "They're going to run out of cash from lawsuits, cleanup and other expenses," he said.
"One really smart thing that 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. 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 that they'll panic and go into Chapter 11."
Meanwhile, BP appears to be mystified about the share decline. "The company is not aware of any reason which justifies this share price movement," it said in a statement on its website today.
"BP faces this situation as a strong company. In March, we indicated that the company's cash inflows and outflows were balanced at an oil price of around $60/barrel. This was before the costs of the incident. Under the current trading environment, we are generating significant additional cash flow. In addition, our gearing is currently below the bottom of our targeted range."
The firm added: "Our asset base is strong and valuable, with more than 18bn barrels of proved reserves and 63bn barrels of resources as at the end of 2009. All of the above gives us significant capacity and flexibility in dealing with the cost of responding to the incident, the environmental remediation and the payment of legitimate claims."
In a widely circulated research note, London-based Abuthnot analyst Dougie Youngson wrote last week: "The key question now is whether BP, and not just BP CEO Tony Hayward, can survive."
Lysle Brinker, co-head of the equity department at IHS Herold, agreed that the oil giant is staggering. "In any scenario, from worst case to best case, there is a strong likelihood that BP will emerge from this situation with a much changed corporate and ownership structure than it had before," Brinker said. "You can't rule out bankruptcy or a takeover, but we think it is more likely that to compete going forward BP will need to take on some form of minority equity partner. A closer relationship with a large national oil company, possibly of Chinese origin, is a percentage-play scenario."
Most analysts, including those at the global banking behemoth Barclays Capital, steadfastly rejected the notion that BP could be toast, with some industry players even viewing BP's shares as attractive and already priced to reflect worst-case liability costs.
Shares Shredded, Again
BP's liabilities are likely to exceed $20 billion factoring in the Justice Department's criminal probe , which could bring heavy fines, as well as a gusher of class-action lawsuits. Some estimates have reached as high as $40 billion, and are based on assumptions that the leak contuinues through the end of the summer, possibly worsened by hurricanes. The latest effort to contain the leak was said to be progressing well, the Coast Guard said.
Emergency Shareholder Meeting Set
Brinker said it's unlikely another western oil company, such as Exxon Mobil or Shell, would attempt to takeover BP because of the daunting and uncertain liability questions, and also because of antitrust laws. But BP and other Western oil companies have already been facing intense, possibly game-changing competitive pressures from Chinese oil companies, such as PetroChina and Sinopec, which are mainly government-owned.
"Before the spill, these nationalized companies were challenging Western companies for access to oil fields and resources and transforming the industry," Brinker said.
BP's Hayward reportedly will be holding an emergency meeting of shareholders Friday to alleviate concerns and stress a balance sheet said to be in the neighborhood of $100 billion.