BP moves to reassure investors over oil spill

BP WILL today try to reassure investors about its financial position after its massive oil spill in the Gulf of Mexico in spite of the steep fall in its share price and downgrades from credit rating agencies.

Tony Hayward and Carl-Henric Svanberg, the company’s chief executive and chairman, will hold a conference call for shareholders and analysts this afternoon London time, in which they will set out BP’s response to the Deepwater Horizon disaster, and insist the company has the financial resources to pay for the clean-up and compensate those affected by the spill.

However, they may leave open the possibility that BP could cut its dividend in response to political pressure in the US.

News of the planned briefing came as BP was forced to accept a second-best option in its bid to fit a containment cap to the leaking well. Broken pipes were cut away with hydraulic shears rather than a diamond saw as originally planned, making it more difficult to secure the cap tightly and prevent oil escaping.

Moody’s and Fitch, the rating agencies, yesterday downgraded BP by one level, from Aa1 to Aa2 for Moody’s and AA+ to AA for Fitch. Both said further downgrades were possible.

BP’s board met by tele-conference yesterday to approve the investor presentation. Mr Hayward and Mr Svanberg are expected to stress the company’s ability to meet the costs of the spill, now widely forecast to rise to about $20 billion (€16.4bn).

The company is expected to make post-tax profits of about $21 billion this year, and in cash terms can cover dividend and interest payments and its capital spending programme at an oil price of $60 per barrel or higher, compared with yesterday’s price of about $73.

It also has relatively low debts, with the ratio of debt to capital employed below the bottom of its target 20-30 per cent range.

On that basis, the dividend would still be affordable.

However, the costs of the spill could continue to rise, especially given the difficulties faced by the latest containment effort, and the news that the oil has moved close to the coast of Florida.

BP is also coming under growing pressure in the US to cut its dividend.

Senators Charles Schumer and Ron Wyden have told Mr Hayward it would be “unfathomable” for BP to pay a dividend before the full cost of the disaster was known.

Alex Stewart, of Evolution Securities, wrote in a note yesterday: “We believe BP will bow to political pressure in the US and suspend dividend payments for the remainder of 2010.”

A BP dividend cut would have a huge impact on investors in the UK market. It was expected to pay 12 per cent of all the dividends from London-listed companies this year, according to analysts at Morgan Stanley. – (Copyright The Financial Times Limited 2010)