BP Struggles in Big Picture...
As shares sink, analysts suggest company may be broken up, purchased
NEW YORK -- Shares in BP plunged again in London after yet another selloff in New York Wednesday, wiping out more than $82 billion in value from the London-based oil and natural gas firm, said ABC News. The latest selloff came after oil industry analyst Matt Simmons speculated for Fortune that a bankruptcy filing was likely within a month. "They're going to run out of cash from lawsuits, cleanup and other expenses," he told the magazine.
Its shares have fallen more than 40% since the April 20 spill, said ABC News, and there has been chatter about a possible bankruptcy [image-nocss] 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% to a 13-year low at the London opening Thursday, although it recovered some ground by midmorning, trading 4.3% lower at 374.50 pence ($5.47), said the report, as analysts suggested the selloff was overdone.
"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," Simmons added.
Meanwhile, BP appears to be mystified about the share decline, ABC News said. "The company is not aware of any reason which justifies this share price movement," it said in a statement on its website yesterday. "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 18 [billion] barrels of proved reserves and 63 [billion] 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 cited by ABC News, 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, according to the media outlet. "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 concern Barclays Capital, steadfastly rejected the notion that BP could be "toast," said the report, with some industry players even viewing BP's shares as attractive and already priced to reflect worst-case liability costs.
BP's liabilities are likely to exceed $20 billion, the report said, 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 continues through the end of the summer, possibly worsened by hurricanes.
Brinker said it is unlikely another Western oil company, such as ExxonMobil or Shell, would attempt to takeover BP because of the daunting and uncertain liability questions, said the report, 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, added ABC News.