SUNDAY, JUNE 6, 2010
KLMNO Weighing deep reserves against unknown costs bp from G1
could also borrow money if neces- sary.
“So we’ve got considerable fire- power here to deal with the costs, any costs as they accrue,” Byron Grote, BP’s chief financial officer said in the conference call. Many analysts think the stag-
gering drop in the price of BP’s stock since the April 20 explosion has been too steep. Mark Gilman, an analyst with Benchmark, boosted his rating to “buy back” May 26, saying that the reduction in BP’s market value since the spill began “implies gross, pre-tax environmental claims and costs to be in the $80 billion to $110 billion range, which we be- lieve to be unrealistically high.” In an interview Thursday, he said, “while we’re not prepared to make a cost estimate, we’re com- fortable saying it’s not going to be in that magnitude.”
Twinge of anxiety
Most people, however, haven’t been following Gilman’s advice. After he upgraded his rating, BP’s shares have plunged even further. Since the disaster, the stock has sunk 39 percent, erasing more than $70 billion of market value. (Other companies involved in the well have also tumbled, including rig-owner Transocean, with shares down 46 percent and serv- ice-provider Halliburton, down 33 percent. Lease partner Anadarko Petroleum’s shares are off 40 percent.)
BP shareholders are nervous, and while the oil giant has the re- sources to survive such a crisis, estimates of the cost to the com- pany keep rising. Credit Suisse on Thursday issued a report that clean-up costs could total $15 bil- lion to $23 billion and that legal claims could drain $14 billion more from BP’s coffers. Raymond James & Associates this week nearly tripled its esti- mate of costs to $7.5 billion — not
including any criminal or civil lia- bilities. And the three leading rat- ings agencies — Moody’s Investor Service, Fitch Ratings and Stan- dard & Poor’s — lowered their credit ratings on BP’s debt. Pavel Molchanov, an analyst with Raymond James, downgrad- ed the stock to market perform — neither better nor worse than the market average — April 29, nine days after the accident, and doesn’t expect an improvement as long as the negative headlines and oil continue to flow from the gulf. “To draw a line under this . . . the leakage needs to be brought under control,” he said Thursday, adding that the company faces a “nightmare of litigation,” includ- ing a criminal investigation. BP chief Hayward said Friday
that he expected the majority of containment, removal and clean- up costs to be complete by year’s end, but he added that “other ele- ments are likely to be spread over many years in cash terms, includ- ing fines and penalties and lon- ger-term remediation, restitu- tion, claims and litigation cost.” In addition, Hayward said that the disruption in BP’s Gulf of Mexico drilling program reduced its expectations of its oil produc- tion there by 50,000 barrels a day in 2011 and 75,000 barrels a day in 2015.
The dividend
In the Friday call, BP executives were noncommittal about the fate of dividend payments, which might need to be cut for political, if not financial, reasons. On Fri- day, during a visit to the Gulf Coast, President Obama warned BP against paying billions of dol- lars in dividends while “nickel- and-diming” people seeking claims in the region. “Future decisions on the quar- terly dividend will be made as they have always been on the ba- sis of all circumstances at the time,” BP’s board chairman Carl-
Henric Svanberg said in the call. “All factors will be considered and decisions taken in the long-term interest of our shareholders.” Giv- en the drop in the stock price, the dividend yield on the stock is nearly 9 percent. But analysts now widely expect a cutback when BP announces second-quar- ter profits July 27.
Smaller dividend payments would have a broad impact. The London-based giant accounts for about 12 percent of all dividends paid in Britain. A cut would be most keenly felt among pension- ers there. But the impact would also reach the United States, where about 40 percent of the company’s shares are held. At the end of March, major institutional holders of BP stock included State Street and Wellington Manage- ment; the Bill and Melinda Gates Foundation also had a substantial stake.
Some costs of the oil spill will be indirect and intangible, said Molchanov of Raymond James, who noted that BP’s brand and in- dustry reputation will suffer. “From the standpoint of the stock, the relentless day-to-day headlines of BP being lambasted by Washington, the local Gulf Coast communities, by share- holders . . . that is extremely nega- tive for the stock,” he said.
Leadership tested
It is also a huge distraction to the company’s leadership. Hay- ward has been in the United States almost nonstop since get- ting a phone call about the dis- aster during breakfast in his Lon- don home April 21. He has dis- patched most of his top lieutenants, including chief oper- ating officer Doug Suttles, manag- ing director Bob Dudley, BP North America chief Lamar Mackay and head of exploration and production Andy Inglis. Hayward said Friday that he
will set up a “stand-alone” group led by Dudley to deal with the
A groundswell against BP on Facebook, Twitter
by Deborah Zabarenko and Dan Whitcomb
U.S. consumers are venting
frustration over the BP oil spill, demonstrating at gas stations and corporate offices, drumming up support on Facebook and wag- ing a mock public relations cam- paign on Twitter.
But their opposition to BP’s handling of the crisis has yet to achieve critical mass, and any at- tempt to dissuade customers from fueling their cars with BP is likely to hurt the small-business owners who run the stations and have little or no effect on the Brit- ish oil giant’s revenue. Most Americans — seven out of 10 — say BP has done a poor or only fair job in handling the April 20 well blowout and spill in the Gulf of Mexico, according to the Pew Research Center, which tracks public opinion. The Oba- ma administration received slightly better marks, with 57 per- cent rating the government’s re- sponse poor or only fair. In light of this discontent, BP
may have trouble charging a pre- mium price at the pump for its products, said Tom Kloza, chief oil analyst at Oil Price Informa- tion Service. “We are starting to see some
impact so far, and a percent of de- cline or two can have a dramatic impact,” Kloza said. “Unfortu- nately, it has an impact on what you might say are the victims: the marketers and the dealers that made commitments to fly the BP flag.” BP’s petroleum products can be sold at other outlets under other brand names, making a consumer boycott tough to pull off. In any case, he said, price is the biggest factor determining where customers buy gas. Several U.S. groups, including the consumer watchdog Public Citizen and Vermont-based De- mocracy for America, have called for a BP boycott. Historically, en- ergy boycotts have had minimal impact on companies’ revenue. Seize BP, a campaign aimed at
getting the U.S. government to seize BP’s assets and redistribute them to those damaged by the spill, plans a week of demonstra- tions at gas stations and BP offic- es across the nation. The movement to seize BP’s as-
sets is gaining ground on Face- book, where at least five groups are pushing the cause. There is also a spoof Twitter feed, BPGlobalPR, that purports to be the oil company’s online persona. The satirical feed has more than 114,000 followers, compared with the official BP — America feed, which had less than 10,000 on Thursday. The fake feed has donated $10,000 to the Gulf Restoration Network from the sale of T-shirts
emblazoned with an oil-smudged BP logo and the words “bp cares.” Kloza said: “If people are seri- ous about demonstrating or showing they’re indignant, they
can divest themselves of invest- ments, and maybe think about using a little bit less fuel. There’s really no downside in that.”
— Reuters
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spill so that other parts of the company can concentrate on the rest of the business, but top exec- utives like Hayward will probably deal primarily with the oil spill for a long time to come. Moreover, Hayward, who had boosted company earnings and its image in three years as chief executive, has been blasted by controversy about remarks he has made, forcing him to apologize to residents of the Gulf Coast and fend off calls for his ouster. BP’s board chairman Svanberg assert- ed confidence in Hayward. “This is a tough job, and Tony and the team continue to work relent- lessly and they have the Board’s full support,” he said. Hayward added, “I personally think it’s right, that I should be the lightening rod because it al- lows everyone else to go [about] doing the job, but I have got a pretty thick Kevlar jacket.” He said “they’re throwing a few words at me, but I’m a Brit, so sticks and stones can hurt your bones, but will never break them —whatever the expression is.” Some of those stones could still
hurt the company, though, as po- litical outcry grows in the United States, which is a key part of BP’s global strategy. The Gulf of Mexi- co accounts for about 12 percent of BP’s 2.5 million barrels a day of oil production. Over the years, BP has bought two big U.S. firms, So- hio and Amoco, giving it a major presence here. Recently it bought off-shore leases from Devon En- ergy, including prospects in the Gulf of Mexico as well as Brazil. Any criminal charges brought against the company by the Jus- tice Department could impede its ability to obtain licenses from the government.
Obama’s options
One example of the growing chorus of critics is Reich, now a professor at the University of Cali- fornia, Berkeley, who has called for putting BP’s U.S. operations
Gulf Coast Oil Spill
G5
DAVE MARTIN/ASSOCIATED PRESS
Oil from the Deepwater Horizon disaster has washed up in four states. BP says the well is capped; the firm’s liability is not.
into “temporary receivership” like American International Group or General Motors, until the spill is cleaned up. Or, he said in an e-mail, Obama could follow the lead of President Harry S. Tru- man, who nationalized the U.S. steel industry on the eve of a strike in 1952. The Supreme Court ruled that Truman lacked the au- thority to seize the steel mills, but Reich argues that Obama could claim authority to step in under the Oil Pollution Act of 1990. “If this thing continues to wors-
en, it becomes untenable for a for- profit corporation to be in con- trol,” Reich said. “BP’s primary re- sponsibility is to its shareholders; only the government, through the President, has a specific responsi- bility and accountability to the public. Call it temporary receiver- ship, special-purpose nationaliza- tion or liverwurst — it won’t mat- ter. The government will have to take over. But only temporarily, until the spill is stopped.”
mufsons@washpost.com tset@washpost.com
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